The rupee could come under serious pressure if Reserve Bank Governor Raghuram Rajan’s term is not renewed by the Narendra Modi government, says global brokerage CLSA. Dr Rajan’s three-year term as RBI governor will come to an end in September 2016.
“The biggest risk to currency market is if Rajan’s term is not renewed,” wrote CLSA analyst Christopher Wood in his widely tracked “Greed & Fear” newsletter.
Dr Rajan took charge of India’s central bank in September 2013, when the country was in the midst of a currency crisis, with the rupee hitting a record low of 68.85 per dollar.
Within days of Dr Rajan’s appointment as RBI chief, the rupee stabilized, and later staged a dramatic reversal to rise to 61-62 per dollar by November 2013.
The strong rally in the rupee propelled the domestic stock markets to an all-time high in November 2013.
During Dr Rajan’s tenure as RBI governor, the rupee has outperformed its global peers.
The rupee may have weakened against the dollar in nominal terms, but at real effective exchange rates, it appreciated by 5.5 per cent in 2014-15 and 3 per cent in 2015-16, Finance Minister Arun Jaitley told Parliament earlier this week.
Dr Rajan has also been widely praised for doggedly pursuing high inflation that kept interest rates at elevated levels and weighed on economic growth.
However, speculation about him not getting a second term as RBI governor has gained ground after Dr Rajan compared India to “the one-eyed man” being king in the “land of the blind”.
His comment was criticised by Minister of State For Finance Jayant Sinha and Commerce Minister Nirmala Sitharaman, who said Dr Rajan should have chosen his words more carefully.
Finance Minister Arun Jaitley has repeatedly declined to comment on whether the government will extend Dr Rajan’s term.