Head Of India Central Bank Unexpectedly Announces Intention To Leave

Tyler Durden's picture

In many ways, Raghuram Rajan is India's version of Paul Volcker.

When the former IMF chief economist took over the reins of the Reserve Bank of India in September 2013, the rupee was plummeting and inflation was at double-digit levels. Since then he has waged a determined battle against India’s spiralling prices, persuading New Delhi to adopt a formal inflation-targeting framework for its once ad hoc monetary policy. Inflation, nearly 11% in 2013, tumbled to 5.8% last year (helped by plunging oil prices), with the central bank succeeding in not only stabilizing the rupee and the local stock market, but making India the world's fastest growing major economy, overtaking China.

Furthermore, Rajan has been a central banker cut from a different cloth than most of his peers: unlike Yellen, Draghi, Kuroda et al, Rajan's frequent warnings about the state of the global economy, about asset bubbles and the shortcoming of unconventional monetary policy, have served as a welcome indicator that at least some of the world's most powerful economists are not utterly clueless (a topic discussed by Citigroup just yesterday).

However, Rajan's determined fight with inflation courtesy of high rates also set the seeds for his own destruction.

As the FT wrote in May, "to many international investors, the Reserve Bank of India governor Raghuram Rajan is a near-hero — the articulate, market-savvy central banker who tamed India’s inflation, restored its macroeconomic stability and is driving a banking system clean-up. But admiration is not universal. Many Indian businessmen are frustrated that interest rates have not fallen faster. Some tycoons are unhappy with growing pressure to repay their overleveraged companies’ debts to ailing state banks, despite tough economic times."

Ironically, political sentiment against Rajan - the man who saved India's economy in 2013 - was rising to the point where many suspected he may simply leave when his term expired in September.

Now, with Mr Rajan’s first term ending in September, an influential politician from prime minister Narendra Modi’s Bharatiya Janata party has launched a scathing attack, accusing the RBI governor of a “wilful and apparently deliberate attempt . . . to wreck the Indian economy”.

 

In his letter last week to Mr Modi, Subramanian Swamy, a 77-year-old Harvard-educated economist, complains about high interest rates and claims that Mr Rajan is “mentally not fully Indian” because he has a green card permitting him to live and work in the US.

 

The criticism, by a prominent lawmaker to whom the BJP gave a parliamentary seat only last month, has worried investors, who were already anxious that Mr Rajan might be replaced by someone more pliant — and less voluble.

And, as Rajeev Malik, senior economist at CLSA, said one month ago, the fate of Rajan “does give palpitations to investors. Raghu stands out as the single most potent policymaker, who has enthused foreign investors in terms of macro-stability and encouraged their confidence in Indian policymaking.” He added that “Raghu would leave very big shoes to fill”.

None other than Jeffrey Gundlach, during his latest call with DoubleLine investors, said that India may be the only equity safe haven providing substantial upside return potential.

Alas, not any more, because as of this morning, the worst case outcome for many Indian investors has come true, when the RBI Governor said he would return to academia when his term ends on Sept. 4 in a message to central bank staff put up on website.  Rajan was generous in his parting words, saying government reforms, together with steps by regulators will lead to greater job growth, prosperity for our people. Rajan said that “I will, of course, always be available to serve my country when needed" and added that “I am confident my successor will take us to new heights with your help."

Others are hardly so sure. Rajan's concluding words: there is more work left to be done on reining in inflation, and cleaning up banks.

And now that India is the latest country where the central banker will merely be a political puppet, the most likely outcome is the lowering of rates, and the redlining of India's economy, which -while maybe having grown below potential, was at least stable. As Rajan departs, so does the final rock of stability in a world of monetary lunacy. It also means that economists and traders will start having to factor in even more global instability in a world which is already teetering on the edge.

Rajan's full letter below

Message to RBI staff from Dr. Raghuram Rajan.

Dear Colleagues,

I took office in September 2013 as the 23rd Governor of the Reserve Bank of India. At that time, the currency was plunging daily, inflation was high, and growth was weak. India was then deemed one of the “Fragile Five”. In my opening statement as Governor, I laid out an agenda for action that I had discussed with you, including a new monetary framework that focused on bringing inflation down, raising of Foreign Currency Non-Resident (B) deposits to bolster our foreign exchange reserves, transparent licensing of new universal and niche banks by committees of unimpeachable integrity, creating new institutions such as the Bharat Bill Payment System and the Trade Receivables Exchange, expanding payments to all via mobile phones, and developing a large loan data base to better map and resolve the extent of system-wide distress. By implementing these measures, I said we would “build a bridge to the future, over the stormy waves produced by global financial markets”.

Today, I feel proud that we at the Reserve Bank have delivered on all these proposals. A new inflation-focused framework is in place that has helped halve inflation and allowed savers to earn positive real interest rates on deposits after a long time. We have also been able to cut interest rates by 150 basis points after raising them initially. This has reduced the nominal interest rate the government has to pay even while lengthening maturities it can issue – the government has been able to issue a 40 year bond for the first time. Finally, the currency stabilized after our actions, and our foreign exchange reserves are at a record high, even after we have fully provided for the outflow of foreign currency deposits we secured in 2013. Today, we are the fastest growing large economy in the world, having long exited the ranks of the Fragile Five.

We have done far more than was laid out in that initial statement, including helping the government reform the process of appointing Public Sector Bank management through the creation of the Bank Board Bureau (based on the recommendation of the RBI-appointed Nayak Committee), creating a whole set of new structures to allow banks to recover payments from failing projects, and forcing timely bank recognition of their unacknowledged bad debts and provisioning under the Asset Quality Review (AQR). We have worked on an enabling framework for National Payments Corporation of India to roll out the Universal Payment Interface, which will soon revolutionize mobile to mobile payments in the country. Internally, the RBI has gone through a restructuring and streamlining, designed and driven by our own senior staff. We are strengthening the specialization and skills of our employees so that they are second to none in the world. In everything we have done, we have been guided by the eminent public citizens on our Board such as Padma Vibhushan Dr. Anil Kakodkar, former Chairman of the Atomic Energy Commission and Padma Bhushan and Magsaysay award winner Ela Bhatt of the Self Employed Women’s Association. The integrity and capability of our people, and the transparency of our actions, is unparalleled, and I am proud to be a part of such a fine organization.

I am an academic and I have always made it clear that my ultimate home is in the realm of ideas. The approaching end of my three year term, and of my leave at the University of Chicago, was therefore a good time to reflect on how much we had accomplished. While all of what we laid out on that first day is done, two subsequent developments are yet to be completed. Inflation is in the target zone, but the monetary policy committee that will set policy has yet to be formed. Moreover, the bank clean up initiated under the Asset Quality Review, having already brought more credibility to bank balance sheets, is still ongoing. International developments also pose some risks in the short term.

While I was open to seeing these developments through, on due reflection, and after consultation with the government, I want to share with you that I will be returning to academia when my term as Governor ends on September 4, 2016.  I will, of course, always be available to serve my country when needed.

Colleagues, we have worked with the government over the last three years to create a platform of macroeconomic and institutional stability. I am sure the work we have done will enable us to ride out imminent sources of market volatility like the threat of Brexit. We have made adequate preparations for the repayment of Foreign Currency Non-Resident (B) deposits and their outflow, managed properly, should largely be a non-event. Morale at the Bank is high because of your accomplishments.  I am sure the reforms the government is undertaking, together with what will be done by you and other regulators, will build on this platform and reflect in greater job growth and prosperity for our people in the years to come. I am confident my successor will take us to new heights with your help. I will still be working with you for the next couple of months, but let me thank all of you in the RBI family in advance for your dedicated work and unflinching support. It has been a fantastic journey together!

With gratitude

Yours sincerely

Raghuram G. Rajan

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FreeShitter's picture

Getting the bunker ready ;)

bamawatson's picture

nothing to see here, peddling fiction, move along

espirit's picture

All your Gold are belong to us.

BobEore's picture

 

All your Gold are belong to us.

 

Which was indeed, the essence of Rajan's dilemma. Contrary to the suggestion of pressures of domestic nature, terminating his wish for further "service to the country" -

 

Rajan's biggest problem was the endless application of external pressure to conform the country to an outside agenda used against Asia as a whole. As I detailed in this story

This week, further specifics emerge as to how powerless - as well as collusive - all of these elements really are. As the stories below demonstrate, India's Central Bank is a mere puppet blowing in the winds of policy directives clearly coming from competing factions that "own" governments of supposedly 'sovereign' nations.

from over a year ago, the flip-flopping over the India central banks policy on gold imports was a direct consquence of orders received 'from above.'  The model crafted first in Turkey - to be applied to the other Asian nations will outsized citizen gold hoardings - needed a fierce battle to overcome the nationalist sentiment of high echelons in that bank - and received only partial success.

Nevertheless, it would have remained clear to Rajan, and anybody else with a clear interest(as opposed to vested one), that the fix was in for all emerging economies - even the biggest proving no exception. The machinations of the World Gold Council in this instance and others have been laid fully bare - but the sleepy "gold" media of the west has simply sat on the story till it grew stale. Though certainly no hero, the man departs with more integrity intact than many will grant him credit for.

All of India's gold still remains with Indians - for now. Which is more than former central bankers in places like Libya, Ukrania, and Iraq can say!

Life of Illusion's picture

 

 

All about entry to NSG and will have major impact in region..... CB of India policy change.

 

http://www.bangaloremirror.com/news/india/US-UK-push-for-Indias-NSG-entr...

 

Deal cut

During Modi’s US visit, Obama backed India’s NSG entry

 


 

BobEore's picture

 

Another hole in the BRICS HIT HOUSE what?

Never One Roach's picture

He's probably anxious to move himself and his family to that $8 million McMansion he might have bought in Montreal or Vancouver before the shtf in India and the global markets.

 

Luckily, there's still zero accountability so he's pretty safe ... as long as he does not deny climate change and global warming.

Kissy Ass's picture

I'm pretty sure Rajan use to post on here Bangalore Equity or somesuch. We use to pounce on the dude.

ElCapitalist's picture

Rajan was disliked by interests who prefer India to become a consumption nation. Imagine paying 10% on mortgage, and despite that, there is an asset bubble (housing) in major Indian cities. Also, there is a parallel black economy that operates on cash and other transfers under the radar. To top it all, government owned banks dominate India, and often loans are doled or forgiven based on which businessman wets the beak of which politician. With Rajan out, it's crony capitalism time. India will grow fast on lower interest rates but fall faster (a la China) when some of the bubbles burst. India - welcome to Capitalism. All your elephants belong to us.

Jack Oliver's picture

Wise man !  Although this comment is pretty 'telling' !

 

"I am sure the work we have done will enable us to ride out imminent sources of market volatility like the threat of Brexit"

 

I think he knows SOMETHING !!

quadraspleen's picture

"to many international investors, the Reserve Bank of India governor Raghuram Rajan is a near-hero — the articulate, market-savvy central banker who tamed India’s inflation, restored its macroeconomic stability and is driving a banking system clean-up. But admiration is not universal. Many Indian businessmen are frustrated that interest rates have not fallen faster. Some tycoons are unhappy with growing pressure to repay their overleveraged companies’ debts to ailing state banks, despite tough economic times."

 

So apart from the bit about cleaning up the banking system (or driving that clean-up - let us know how that goes, won't you) not so different from any other central banker, then?

He just had the luck to be a boss of a CB of a country that's having a massive step up..Sure he "fixed" the Indian economy, but for who? India still has some of the poorest people on earth living there. There is probably a larger gap between the richest and poorest in India than pretty much anywhere else on earth. No EBT there, either. You poor with no education, you beg.

Atomizer's picture

So soon? I only posted hours ago. We'll get you a job. I need you to understand. We will help you, they kill each other like locust cycle. You probably know what's happening. Stay on the good side. You'll survive. 

flash338's picture

Wasn't this the guy that pointed out the London gold market is lever 92 to 1 in a report recently?

flash338's picture

Andrew Mcguire (sp?) Talked about it in his latest interview on king wold news

flash338's picture

First rule of club central bank, never talk about gold. Second rule, NEVER TALK ABOUT GOLD!

MASTER OF UNIVERSE's picture

One does not retire in the midst of economic battle, Dr. Rajan. Clearly, just as Canadian Chartered Bank CEOs are bailing out of their own private Real Estate investments in Toronto, and preparing to BUG out, so too is Dr. Rajan IMHO. Furthermore, we all know that Deutsche Bank is going tits up like Lehman in a matter of weeks from now, and that explains why Rajan is getting out before the entire system implodes all over the entire world.

Atomizer's picture

The same real estate collapse is going to occur as 2007 Greenspan era. As a American, have no motivation to buy up houses. It's climate is to cold. Furthermore, I can't pass the property to the kids. The Planned North American Union is failed. So is TPP. 

Fuck you Obama. 

artichoke's picture

Well I think he was fired.  He even says he was willing to stay.

gz0's picture

Huh, who is John Galt ?

earleflorida's picture

question:   what's the difference between a 'state-owned-enterprise [soe]' and a 'too-big-to-fail [tbtf]', and a indian`economist trained IMF, 'central banker [cb]'?

they're all maKe-up in amurika...[!]

29.5 hours's picture

 

Rajan is/was the only government official who represented credibility and clarity for foreign investors. This is bad for the current regime—which deserves no sympathy.

 

earleflorida's picture

with south america in a economic maelstrom, and europe fragmented,... having only se asia as the 21st century growth-engine, where does one expect these foreign investors to turn?

29.5 hours's picture

 

"where does one expect these foreign investors to turn?"

That is the question of questions for investors, isn't it. Now, one of the few semi-bright options has a big question mark over it.

 

 

East Indian's picture

Rajan is/was the only government official who represented credibility and clarity for foreign investors.

 

That is because others (in the RBI and the Finmin) are totally clueless.

GraveDancer's picture

Markets may adjust but what will happen is breaking of the myth that an economy "needs" a supposedly learned, PhD economist as its central bank chief. As India's economy marches forward, people would look back to Rajan as someone who was not indispensable. And with Rajan, the central bank omnipotence will also wither away.

I look forward to the day when economies wont need central banking, when the natural rhythm of supply and demand directs capital flows, when honest price discovery is restored and sound money gets respect again.

artichoke's picture

So in other words a central bank policy of constant money supply or predetermined money supply?

sunilesarapu's picture

Rajan Exit will create jitters in indian market than brexit.Finally an end for a true patriotic central banker.

Seasmoke's picture

Bailing early. Just like Bernanke. Pussies.

sekhars's picture

Rajan is a IMF guy. Has not done any thing. All this is due to Modi who came to power in 2014. They want to get this IMF spy out of India. Good news for India. Prices and things are better since 2014 and is due to Modi not Rajan 

Avichi's picture

"World Bankers" Cabal has Rajan in their pockets, it was staged plan by the IMF and the World Bank to destabilize the Indian Political and FInancial systems for Indian Economy to be anothe r"European Disaster" by the <b> Draghis, Yellen and the Karodas alike. These Banker Cabals will stop at nothing, it is time <b>INDIA WAKE UP and increase their nuclear program and defence spending.

Avichi's picture

"World Bankers" Cabal has Rajan in their pockets, it was staged plan by the IMF and the World Bank to destabilize the Indian Political and FInancial systems for Indian Economy to be anothe r"European Disaster" by the <b> Draghis, Yellen and the Karodas alike. These Banker Cabals will stop at nothing, it is time <b>INDIA WAKE UP and increase their nuclear program and defence spending.

moneylover3's picture

fcuk rajan
he is slave of sonia gandhi(congress party/biggest mafia family in India)
good riddance

jcdenton's picture

India you don't say?

 

Oh lets just print this verbatim .. (just so there is no misunderstandings whatsoever)

[and included another little country that starts with an "I" as well]

 

 

[begin quoteblock]

 

Using a Federal Reserve ‘tap’ based on Ambassador Leo Wanta’s earmarked and tagged $4.5 trillion, these and other high-level scamsters and criminals have been running, inter alia, more than $25 trillion of US funds into India and Israel, allegedly using the payment services of the Bank of England, which are likewise allegedly being made available corruptly, for the corrupt disposal of the proceeds.

EDITOR’S LETTER TO THE BANK OF ENGLAND

In the light of this inside information, the Editor had to write to the Bank of England by email, on 29th August 2006, as follows:

Subject: Questions to the Bank of England concerning the illegal trading by corrupt US officials via India of $25+ trillion

Bank of England

Press Office

29th August 2006

Dear Sirs

I receive your regular monetary reports and am the Editor and Publisher of International Currency Review. I am also the official outlet for information for the international financial community concerning the Settlement agreed for Ambassador Leo Emil Wanta.

Details of our recent Internet postings on this subject will be found on our website www.worldreports. org, Home Page. The current report is accessible on the Click Here panel, and the earlier reports are accessible via the Archive button, also on the Home Page.

How much money is flowing from financial institutions in India, to the Bank of England, in the form of cash (US dollars), Medium-Term Notes and US Treasury instruments?

What are the amounts that are being credited for accounts of the following:

Former US President George H. W. Bush Sr.

President George W. Bush Jr.

Former President William Jefferson Clinton

Senator Hillary Clinton

Mr Donald Rumsfeld, US Secretary of Defense

Vice President Richard Cheney

Special accounts for the US Republican Party

Special accounts for the US Democratic Party

As the Bank will certainly be aware, the funds, amounting to some $25+ trillion, conveyed to India by US official parties, are being handled and traded illegally, and it follows that the India-based institution( s) and the Bank of England would be engaged in criminal financial operations in respect of any associated transactions.

We are publishing a very extensive double issue of International Currency Review in which detailed information about the financial scandals concerned, including extensive banking documentation that we have been authorised to incorporate, will appear along with our analyses.

We will publish the Bank’s response to this enquiry. In the unlikely event that I receive no response from the Bank within seven days, this fact will be made prominently known to our subscribers, as being a matter of pressing international concern in the public interest.

I look forward to hearing from the Bank at the earliest possible moment, in view of the manifest urgency of this enquiry.

For the sake of good order I would add that I have circulated this enquiry to interested parties, who will be most interested in your response.

Yours faithfully,

Christopher Story FRSA

Managing Director

International Currency Review

 

[end quoteblock]

 

Source: http://wantarevelations.com/2014/01/wanta-plan-macro-financial-economic-... 

 

Which we ALL now thoroughly undestand is NOT -- a bank ..

 

http://eagleonetowanta.com/

 

* About Chris Story: http://www.veteranstoday.com/2015/05/04/neo-so-much-more-than-nukes/

artichoke's picture

Seems like he was fired/pushed out, and he basically says so.  All the Indians I know professionally in USA want to go back to India in a high government role, emphasis on "high".  

Central Ohio's picture

He was one of the view who raised a flag before the 2008 ripoff.  In my effort to understand what happened in 2008, I watched several of his videos on YTube, and read some stuff by him.  I've admired him since.  He is rare.

 

Yeh, sounds like politics pushed him out.

Jack Oliver's picture

Probably hook up with Bernanke on a tropical Island somewhere and watch the SHIT SHOW go down !

Watch it all on 'satellite' TV - Assholes !

onmail1's picture

During the time of this Head of Central bank of India(RBI)

Indian currency devalued from 45 to 67 (more than 25% crash)

This man is American citizen (green card holder)

He should not have been the head in the first place 

(BTW I heard that finance ministry's policies & appointments are dictated by USA)

ppl come , ppl go

The face of Indian poor remains the same 

Gandhi said :

'Whenever u want to do something, think of the face of poorest of poor & think

is it going to benefit that poor person , if yes , do it , else dont'  What great words

The face of poor is the face of God

The rich always oppose policies to benefit poor ,

thats what is crony capitalism is , the cancer of economy

-------------------

Time has come to give poor direct money unconditionally

because the state is like a father or mother

The poor are poor becuz of their damned condition they were born into

and they have no option but to act like slave 

unless the state lends a kind & helping hand to them

This man opposed it