2015: THE YEAR BELONGED  TO RAGHURAM RAJAN

In his first speech as RBI governor, Mr. Raghuram Rajan had reassured that in the present times of global volatility, RBI would be a beacon of stability with transparency and predictability as its major pillars. RBI has always lived up to it and under him, also learnt to surprise the markets with its unpredictable policy actions. 2015 started with a surprise Sankranti gift of 25 basis points cut after fifth bi-monthly december policy in 2014. And then again in 4^th March 2015, another 25 basis cut with repo rate now at 7.5%.  This unpredictable feature quashed volatility in Indian rupee and strengthened it against spillover effects from offshore NDF market and with ample support from lower CAD and fiscal deficit, Indian rupee became one of the best performing currencies among emerging markets.  Though it hurt exports, India became a credible investment destination with a stable currency which couldn’t be messed up.

Reducing repo rate by 125 basis in the last twelve months and prodding banks to transmit this benefit to borrowers was a continuous battle for the governor as our PSU banks started reducing their base rates wholeheartedly only after 50 basis cut in the fourth bi monthly policy 2015. To solve this conundrum once and for all, marginal cost of funds would be adopted by banks to calculate their base rates. Though two universal banking licenses had already been given in 2014, licenses for small and payment banks a major milestone for his tenure were given in 2015, thus fulfilling his agenda of inclusive growth. Last but not the least his hawkish stance on inflation yielded results as CPI fell from 10% in 2013 to 3.78% in July 2015.

Moving on the same path shown by Mr. D Subbarao, Raghuram Rajan too maintained central bank’s independence as being a data driven institution rather than government motivated.  Government too has played its part, acknowledging his merit and accepting RBI’s demands by not curtailing its money market and public debt management functions.  But Mr. Rajan would also be credited with democratizing interest rate policy and reducing RBI’s autonomy. His term ends this November, just nine months to go, it would be hard for the government to find his replacement and the daily pink papers would again become so boring.