Patel’s departure has stirred questions about the independence of the Reserve Bank of India amid a public spat with the government.
Mumbai: India’s currency and stocks are set to slide, derivatives indicate, as the surprise resignation of the nation’s central bank Governor Urjit Patel sends a shockwave through markets.
Rupee non-deliverable forwards weakened 1.6 per cent on the news, which came after the close of regular trading in Mumbai on Monday. Futures on the Nifty 50 Index of equities fell 1.4 per cent in Singapore.
The unexpected departure of Patel, who cited personal reasons for his resignation, stirred questions about the independence of the central bank amid a public spat with the government. And investors were already on edge ahead of the results of key state elections Tuesday, with the exit polls helping to send Indian shares to their worst session in two months.
“We will see a kneejerk selloff in all asset classes Tuesday,” said Lakshmi Iyer, head of fixed income at Kotak Mahindra Asset Management Co. “And if the declines comes with a bad poll outcome for the BJP, we may see a big drop.”
Here’s what other investors and strategists are saying:
“Our immediate concern is that if the resignation was influenced by the government’s interference with the central bank’s independence, it would obviously have very damaging consequences for RBI’s credibility,” said Anders Faergemann, a fund manager at PineBridge Investments in London “Policymakers would need to address immediately to avoid a sharp market correction.”
“Markets are going to react very negatively to this news,” said Paresh Nayar, Mumbai-based head of currency and money markets at FirstRand. “It’s not a good outcome at all.”
BNP Paribas Asset:
“There is a risk that the rates rally is now behind us, especially if oil prices are rebounding,” says Jean-Charles Sambor, deputy head, emerging-market debt “The medium-term outlook will be driven by how credible the replacement is and the relationship with the finance ministry.”
Macquarie Capital Securities:
Resignation will be taken negatively by markets as they would have expected continuity till the general elections, says Suresh Ganapathy, head of financial sector research “The government will also have to appoint a new RBI Governor, which will not be easy. Continuity of policy, which is important for a system perspective, will be in a limbo.”
Indian assets will likely overreact to the departure — and this will create buying opportunities, said Jan Dehn, head of research at Ashmore Group in London. “I would look to overreactions to the downside to add at attractive levels. Even if this news is bad, the proof of the pudding is in the eating” “Patel’s depart is only bad news if bad macroeconomic policies follow, which is not certain yet. There will be plenty of trading opportunities both up and down so this is not a market you want to be out of.”
NSP Treasury Risk Management:
Stock and currency markets will be extremely volatile Tuesday, tracking the global markets which are already correcting lower, says Param Sarma, chief executive at Mumbai-based forex broker. “There’s a chance of INR testing 72.80 before a recovery can set it; the Sensex may see a 1,000-point slide” from Monday’s close of 34,959.72 “In the circumstances, intervention from the RBI cannot be expected and the rupee’s depreciation may be sharper if state election results, by any chance, indicate an anti-Modi view.”
Independent banking analyst ( Hemindra Hazari)
“It signifies a lot of turbulence, a lot of pressure on him, so he probably resigned as a protest. Or he has been made to resign, one of the two.” “Immediately there will be a negative impact, but everything will come back to normal eventually.” – Bloomberg
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