Raghuram Rajan brings hope as new RBI governor

Raghuram Rajan, the newly appointed governor of the Reserve Bank of India (RBI), kicked-off his term with a bang, announcing a series of measures to support the economy.

Seen here arriving at the RBI headquarters in Mumbai on September 4, 2013, Rajan had so far been cautious in his public utterances.

Rajan (left) being greeted by Deputy Governor KC Chakrabarty and other members of the central bank in Mumbai on September 4, 2013.

Rajan announced a blizzard of measures at his maiden conference as RBI Governor the same day (September 4), speaking so fast that at times journalists struggled to keep up.

The former chief economic advisor to Finance Minister P Chidambaram, who before taking office warned that he did not have a magic wand to fix India's economic ills, was careful to dampen unrealistic expectations of what he could achieve.

In an unexpectedly detailed and wide-ranging briefing, Raghuram Rajan outlined plans to attract more funds from overseas by subsidising hedging costs for banks and making it easier for importers and exporters to hedge currency risk.

Rajan made clear his intention to liberalise markets, including pushing for more rupee trade settlement, introducing new financial products such as overnight interest rate swaps and removing curbs on opening new branches by Indian banks.

A prominent former International Monetary Fund chief economist, Rajan, 50, succeeds Duvvuri Subbarao (shaking hands on the right) at the helm of RBI.

Rajan had been expected to follow in the footsteps of Subbarao, who took office with a one-line statement saying he would focus on containing inflation. Instead, Rajan had a six-page statement outlining his plan for liberalising financial markets and the banking sector.

He enters office in the eye of a financial storm as the country grapples with its worst economic crisis since 1991, which has sent the rupee skidding by some 20 percent this year.

"The governorship of the central bank is not meant to win one votes or Facebook 'likes'. But I hope to do the right thing, no matter what the criticism, even while looking to learn from the criticism," Rajan told reporters at his maiden press briefing as RBI governor.

Rajan, in his remarks, outlined the plan to attract more funds from non-resident Indians (NRIs) as part of a broader push to lure inflows. Under the plan, the central bank will offer a swap window to banks for fresh dollar deposits mobilised from NRIs.

The central bank will also offer forex swap into rupees at a concessional rate below market levels for banks who raise dollar funds through overseas borrowings.

Rajan's arrival has been welcomed by some traders, who hope for a fresh approach to the RBI's controversial bid to defend the rupee by tightening cash conditions and raising short-term interest rates.

Among Rajan's measures, he said banks should gradually be allowed to decrease their mandatory holdings of government securities, which would free up capital for lending. He also said new bank licences should be awarded on an ongoing basis.

Rajan also proposed the issue of inflation-indexed bonds linked to the consumer price index, an indication that the central bank may soon shift its inflation benchmark from the wholesale price index.