Mumbai: Will Reserve Bank of India, or RBI, governor Y.V. Reddy get an extension?
A letter written by the Indian central bank’s monetary policy department to senior executives of Indian Banks’ Association (IBA), an industry lobby, seems to suggest that.
M.D. Patra, adviser-in-charge of the monetary policy department of the Indian central bank, recently wrote the letter asking IBA executives to attend a “pre-policy consultative meeting” with Reddy on 29 September in the committee room of the central bank’s office on the city’s Mint Road. The mid-term review of the central bank’s annual monetary policy will be released on 24 October.
Extension on cards? Y.V.Reddy. Photograph: Abhijit Bhatlekar / Mint
With India’s inflation ruling at a 16-year high of 12.63% and economic growth slowing, it doesn’t come as a surprise that the RBI governor will hold the pre-policy meeting with IBA, but what is interesting is that the meeting is specifically being called in Reddy’s name some three weeks after his term as governor is set to end.
“It’s a meeting with Reddy. This (letter) somewhat makes it clear that he will remain in office (beyond his current term). Otherwise, it would have been a governor’s meeting,” says one banker who isn’t invited at the meeting but was aware of the development.
Traditionally, RBI governor or deputy governor Rakesh Mohan meets senior bankers ahead of the policy to discuss monetary situation and gets their feedback on the likely policy stance.
Reddy’s five-year term comes to an end on 5 September and, at least publicly and inside the bank, he has made some “farewell” comments.
Incidentally, the IBA meeting is not the only one that Reddy has committed to after 5 September. He is also set to inaugurate a seminar on Basel II norms at RBI’s College of Agricultural Banking in Pune in the first week of October.
“My reading is Reddy will continue to stay at the helm,” says an RBI official who didn’t want to be named.
At least two separate people in the Capital who are familiar with the issue told Mint that Reddy will get one-year extension and this recommendation is awaiting a formal approval of the Prime Minister’s Office. Neither of them wanted to be identified.
Earlier this week, the Financial Chronicle newspaper said, without citing the source of its information, that the finance ministry has moved a note seeking Reddy’s continuance in the post for a year more.
Extensions to tenures for RBI governors are fairly common and both his immediate predecessors Bimal Jalan as well as C. Rangarajan, whom Jalan succeeded, received extensions, but not too many governors have had such a long stint.
In RBI’s 73-year history, only four governors have spent six years or more in office. They are Jalan, Benegal Rama Rau, Chintaman D. Deshmukh and James Braid Taylor.
Because of the government’s silence on this issue, there has been growing speculation about a possible extension for Reddy. A change of guard at this juncture when the Congress-led United Progressive Alliance government is getting ready for a general election may not be appropriate, note some observers.
A 1964 batch Indian administrative officer, Reddy was a deputy governor at RBI but went to the International Monetary Fund at Washington before coming back to the Indian central bank as governor in September 2003.
In the first four year of his tenure, riding high on low inflation, low interest rate and high liquidity, India emerged as the second fastest growing economy in the world, but the scenario has changed with the rise in inflation.
Reddy has raised the policy rate by 125 basis points and banks’ cash reserve ratio (CRR), or the money that commercial banks are required to keep with the central bank, by 150 basis points since April to fight the rising inflation and squeeze liquidity from the system. One basis point is one-hundredth of a percentage point. Since he took over in September 2005, Reddy has not cut interest rates even once.