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Brokerages believe that the RBI Governor Urjit Patel's resignation will be sentimentally negative for markets.
Urjit Patel’s resignation from the Governorship of the RBI comes nine months before his term ends.
Here's what brokerages are saying on his resignation:
CLSACLSA said the RBI Governor's resignation is a sentiment-negative for markets and could impact flows into debt and equity markets.
The RBI may intervene in the currency or G-sec market to manage volatility.
While decisions at the RBI are institutionalised and past decisions may not change, the market will speculate over PCA norms, shareholding/the CEO role of promoters in private banks and holding company structures, said CLSA.
The direction of monetary policy actions will also be relevant, it said.
The government has been seeking the relaxation of PCA norms for PSU banks, which if relaxed, would be positive for those banks, said CLSA.
CitiAs the rift between the RBI and the government was laid bare in late October, the markets possibly would not be completely surprised, said Citi.
Still some kneejerk negative reaction is expected as the market grapples with the extent of RBI’s loss of independence and the uncertainty about the new Governor, it added.
The extent of the intervention by the RBI Board in policy matters will be closely watched and the 14 Dec RBI Board meeting assumes special significance , if it is not deferred, said Citi.
The firm expects RBI’s independence on interest rate and FX policies to be maintained but said that the board might want more influence on regulatory policies/RBI.
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NomuraNomura said both the RBI and the government are right on various issues, but the sudden resignation will lead to questions about whether the government is trying to stifle institutions and whether the resignation is a statement to protect the RBI’s independence.
This, along with the lack of policy coordination between the RBI and the government, will mean higher India risk premium, at least in the short term, in an environment where domestic political uncertainty is anyway on the rise owing to the elections scheduled in second quarter of 2019, said Nomura.
Nomura said the resignation should have no bearing on the direction of monetary policy, which is decided by the monetary policy committee, and which is set to take a dovish skew owing to fundamental reasons such as low growth and low inflation.
However, decisions on the regulatory functions of the RBI could be affected, it said.
