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Urjit Patel's sudden exit from RBI sends shock waves to nervous markets

Unexpected resignation hurts the central bank's credibility and is likely to provoke a 'fierce response' from markets

Subhadip Sircar & Kartik Goyal I Bloomberg 


This was already a volatile week for in India, with state elections set to offer a lens on next year’s national vote. Then came the central bank governor’s shock resignation.

quit on Monday citing personal reasons, a decision that some investors took as a new fissure in the Reserve Bank of India’s relationship with Prime Minister Narendra Modi’s government.

Reaction was swift, with rupee non-deliverable forwards weakening. The biggest exchange-traded fund dedicated to Indian stocks, the iShares MSCI India ETF, slumped the most in two years. Futures on the Nifty 50 Index extended declines Tuesday, sliding as much as 2.4 percent. American depository receipts for dropped the most since February.

Indian dollar-bond spreads widened by about three basis points Tuesday morning after Patel’s shock resignation, according to a trader. The implied opening from forwards indicate the onshore rupee may start trading around 72.41 per dollar, after closing at 71.3375 on Monday.

Traders were already reeling from exit polls that showed Modi’s facing a tight contest in some key states, sending Indian shares to their worst session in two months on Monday. The election results are due Tuesday, just as local react to Patel’s departure.

“We will see a knee-jerk sell-off," said Lakshmi Iyer, head of fixed income at “If the declines come with a bad poll outcome for the BJP, we may see a big drop.”

Here’s what other investors and strategists are saying:


Unexpected resignation hurts the central bank’s credibility and is likely to provoke a “fierce response" from markets, with the rupee probably plunging on Tuesday, said Hugo Erken, senior economist at Rabobank International

Naming a "government-minded bureaucrat" as replacement instead of an independent economist would "make matters worse"

Aberdeen Standard Investments:

will remain volatile until a new is appointed, said Frances Hudson, a global strategist in Edinburgh at Aberdeen Standard Investments

Monetary policy direction probably more important than regulatory stance


“Our immediate concern is that if the resignation was influenced by the government’s interference with the central bank’s independence, it would obviously have very damaging consequences for RBI’s credibility," said Anders Faergemann, a fund manager at in London

“Policy makers would need to address immediately to avoid a sharp market correction.”


“Markets are going to react very negatively to this news,” said Paresh Nayar, Mumbai-based head of currency and money markets at FirstRand. “It’s not a good outcome at all”


“There’s a risk that the rates rally is now behind us, especially if oil prices are rebounding,” says Jean-Charles Sambor, deputy head of emerging-market debt

“The medium-term outlook will be driven by how credible the replacement is and the relationship with the finance ministry”

Macquarie Capital Securities:

Resignation will be taken negatively by markets as they would have expected continuity till the general elections, says Suresh Ganapathy, head of financial sector research

“The government will also have to appoint a new Governor, which will not be easy. Continuity of policy, which is important for a system perspective, will be in limbo”

Ashmore Group:

Indian assets will likely overreact to the departure -- and this will create buying opportunities, said Jan Dehn, head of research at Ashmore Group in London

“I would look to overreactions to the downside to add at attractive levels. Even if this is bad, the proof of the pudding is in the eating”

“This is only bad if bad macroeconomic policies follow, which is not certain yet. There will be plenty of trading opportunities both up and down so this is not a market you want to be out of”

First Published: Tue, December 11 2018. 10:03 IST