How Shaktikanta Das may aid regain overseas investor confidence

MUMBAI: The appointment of Shaktikanta Das, a seasoned bureaucrat credited with operationalising New Delhis currency swap programme in 2016, as governor of the Reserve Bank of India may help regain the confidence of overseas investors jolted by the unexpected resignation of Urjit Patel on Monday, investors and analysts said.

The appointment was announced as custodian banks assessed the imminent fallout of Patels resignation on policy-framing.

“Bureaucrats, too, have been successful governors in the past,” said Ashish Vaidya, head of markets for India at Singapore's DBS Bank. “The new governors cordial relations with the government will likely help policy negotiations. This in turn will help in stabilising short-term investor sentiment.”

The functioning of the monetary policy committee would not be impacted as it works under a framework, Vaidya said.

Duvvuri Subbarao and YV Reddy are two former bureaucrats who became RBI governors and were praised for their policies.

Patels resignation came a day before results of five state assembly elections showed setbacks for the ruling Bharatiya Janata Party just ahead of national elections expected early next year. While some were concerned that this could result in changes in policy framing, the financial markets showed little signs of worry and global investors monitored updates without any fresh investment bets.

The benchmark bond yield initially shot up 12 basis points on Tuesday, pulling prices down. The losses were recouped as state-owned banks are said to have stepped up buying at higher levels. Bond yields and prices move in opposite directions. The gauge ended at 7.52%, seven basis points lower than Mondays close.

The benchmark BSE Sensex stock index closed with a gain of 0.54%, recovering from a 1.5% decline earlier in the day. The rupee lost 0.74% to the dollar, closing at 71.87. During the day, it extended losses by 1.54% and recovered on suspected RBI intervention.

“The comfort in India investments comes from the countrys institutional strength (political, regulatory and judiciary),” said Ajay Marwaha, head – investment advisory and EM capital markets, at Sun Global Investments, UK. “Such an event (resignation) undermined the independence of the central bank."

It is important that the new appointment helps re-establish independence of the central bank, he said.

Patel resigned, citing personal reasons, which many believe is an outcome of the dispute over the transfer of surplus reserves to the government and over liquidity for non-banking companies. The move came after months of bickering between the government and the RBI.

“An element of uncertainty earlier gripped global investors. This will now ease as the new governor assumes charge,” said Anindya Banerjee, an analyst at Kotak Securities. “RBI as an institution still commands respect among investors. The new incumbent is going to hold it high.”

Foreign portfolio investors have resumed investing in Indian equities and debt securities. They bought a net of Rs 8,594 crore in domestic securities in December, according to data from the National Securities Depository Ltd.

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