Mumbai: When Raghuram Rajan took charge as the 23rd governor of the Reserve Bank of India (RBI) on 4 September, most people expected a customary announcement, along with the traditional photo shoot and official lunches.
But these are extraordinary times and Rajan was a man in a hurry. Having started work at RBI as an officer on special duty three weeks before becoming governor, he laid out his agenda on the very first day.
His immediate task was to stabilize the financial markets and support the rupee, which had fallen to a record low against the dollar just a few days ago. To do this, Rajan opened concessional swap windows to draw in foreign currency deposits and banking capital. As much as $34 billion came in.
Besides the fire-fighting measures, Rajan also announced his intention to review India’s monetary policy framework and look for ways to strengthen it, a plan to take a look again at the financial-inclusion road map for the country, issue bank permits on tap, introduce interest rate futures, and offer consumer price inflation-linked savings certificates to households struggling to earn real returns in an economy grappling with high inflation.
All this on the first day of assuming charge.
In the five months since, there have been at least 13 major reports and measures that are either aimed at improving market conditions or strengthening the framework for banking and monetary policy.
To tackle the bad-loan problem in the banking system, RBI has focused on ways of early discovery and quick resolution of distressed assets. For the financial markets, the promise of reintroducing interest rate futures has been kept. Savings certificates linked to retail inflation are now available to investors.
Perhaps the boldest step has been the proposal to make inflation the anchor for monetary policy and use retail inflation as the benchmark. The formal acceptance, however, remains contingent on the government.
