Market may turn jittery: Economists

Urjit Patel’s resignation as the RBI Governor will cause jitters in the stock market and uncertainty over the central bank’s policies regarding non-monetary policy issues such as Prompt Corrective Action (PCA) norms, and diluting the Insolvency and Bankruptcy Code rules for power sector companies, economists have cautioned. “This [the resignation] in itself should cause the market to fall quite significantly,” Former Chief Statistician of India Pronab Sen said. “But what’s been happening is that the Indian market is being driven more by global factors than what’s been happening here. I would suspect things will be pretty bad tomorrow.” “As far as the market is concerned, it will be a bit jittery tomorrow because there would be a lot of speculation about why he has resigned,” Madan Sabnavis, Chief Economist at Care Ratings said. Economists also say that there is uncertainty on the other issues that come under the RBI Governor’s purview. “There would be continuity on monetary policy, as it is being guided by the Monetary Policy Committee,” D.K. Srivastava, chief policy advisor at EY said. “And the monetary policy framework is also there, so that will bring continuity. There would be some repercussion as far as the responses in the market are concerned.” “The MPC has very limited jurisdiction in the sense that they are allowed to only address the rate change,” Mr. Sen noted. “But the larger policy in terms of macroprudential regulations, liquidity infusions, all of that is outside their purview. Even those within the RBI’s Central Board expressed surprise over Mr. Patel’s decision to resign. Surprised at the news that RBI governor has resigned,” RBI Central Board member S. Gurumurthy tweeted. “The previous meeting was held in such cordial atmosphere that it comes as a shock. All directors said media had created a wrong perception while inside it was totally different. That makes it even more surprising.” “I enjoyed several hours of personal discussions with him where we found large areas of agreement as well as mutually understandable disagreement,” Mr. Gurumurthy added.

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