Top economist Raghuram Rajan, renowned for predicting the 2008 global financial crisis, took over as head of India’s central bank yesterday amid the country’s worst financial storm in years.
Rajan, a high-profile former IMF chief economist, replaces Duvvuri Subbarao as governor of the Reserve Bank of India (RBI), which has been battling to halt the plummeting rupee amid a sharp economic slowdown.
Rajan arrived at the RBI headquarters in the financial center Mumbai yesterday and met his new colleagues ahead of the handover from Subbarao. He is to take charge operationally today.
Rajan, an outspoken diplomat’s son described by the local media as an “economist with rock star appeal,” takes charge as some analysts fear the once-booming South Asian economy could be heading for a meltdown.
The 50-year-old inherits an economy struggling with a record current account deficit, a currency which has lost up to a quarter of its value against the US dollar this year and annual growth at its weakest in a decade.
Investors will be looking to Rajan, one of the few economists who warned that sub-prime lending could lead to calamity ahead of the 2008 crisis, to introduce policies to calm jittery markets and stabilize the rupee.
“It would be unfair to expect magic from one person,” said Siddhartha Sanyal, chief India economist with Barclays Capital.
“But he is well-equipped to deliver the best one can, given his credentials,” Sanyal said.
HDFC Bank chief economist Abheek Barua called Rajan “more innovative” than Subbarao, who spent five years at the helm of the RBI.
“I feel he will be more aggressive. His first task will be to stabilize the rupee and later help curb some of the liqudity-tightening measures to help drive growth,” Barua said.
The RBI has introduced a series of measures in recent months to try to halt the slide of the rupee, Asia’s worst-performing currency this year, including raising short-term interest rates and tightening cash in the system.
Analysts have raised fears India could face a crunch of the sort it suffered in 1991 when a foreign exchange-strapped government had to pawn its gold for an IMF bailout.
Rajan left his post as a professor at the prestigious University of Chicago’s Booth School of Business and returned to India last year at the request of Indian Prime Minister Manmohan Singh, who wanted him as an adviser.
Rajan has cautioned against expecting too much from his new appointment, saying there are no “quick fixes.”
“No one can doubt the country’s promise,” Rajan said after being named early last month to the post, but he added: “There is no magic wand to make the problems disappear instantaneously.”