Curb 'unnecessary' speculation over my future: Rajan

Raghuram Rajan is said to have informally written to select policymakers and experts, to curb 'unnecessary' speculation over his future at RBI.

Amid mounting speculation over a possible second term for Reserve Bank of India governor Raghuram Rajan, the governor himself is said to be concerned about currency and bond markets’ reactions to various media reports.

Rajan is said to have informally written to select policymakers and experts, to curb 'unnecessary' speculation over his future at RBI and its impact on these markets, it is learnt.

In the letter, Rajan has stated the selection of a central bank governor is an institutional process, undertaken by the government with due consideration.

As such, the media reports and the rumours give the impression of it being a personality-driven contest, untrue and unfair on all concerned, he is believed to have stated.

“Essentially, the media reports and the gossip undermine an established and mature process. It is not about personalities or whether someone likes someone or not. When a decision regarding an appointment as important as that of the RBI governor is made, a number of candidates are considered, including the incumbent,” said an official aware of the contents of Rajan’s missive. 

“It is not that the decisions and the reforms which Rajan or any governor before him have ushered in will be dumped once the next person comes in. So, to reduce it to a popularity contest subverts the process,” the person said, when asked about the contents.

An RBI spokesperson declined to comment for this report.

On Wednesday, the rupee reversed gains and bonds declined after Anandabazar Patrika, a Bangla newspaper, reported Rajan did not want an extension, despite the prime minister wanting to give one. Rajan’s three-year tenure ends on September 3.

The rupee has declined 1.4 per cent in May, its biggest monthly loss since January, as foreign funds exited local bonds amid an emerging-market selloff sparked by growing speculation that a US interest rate increase was imminent.

Indian sovereign bonds also fell on Wednesday, with the yield on notes due January 2026 rising two basis points to 7.49 per cent, its highest close since March 30, according to prices from RBI's trading system.

Analysts said the trigger for both movements seemed to be the news reports on Rajan. There have been a number of reports in various media outlets on the issue.

Rajan is not the only one who is concerned with how the whole story has played out in public and how investors have reacted.

“I think the markets are being immature by reacting to rumours and insinuations. What the governor has done, both under this government and the last, is bring in institutional reforms,” said Rathin Roy, director of the National Institute of Public Finance and Policy.

“It is a disservice to the governor that any decision on his second term, which rests with the PM and the finance minister, is being played out in the media based on rumours.”

It all began after Bharatiya Janata Party member Subramanian Swamy, an influential MP, kicked off a rather public campaign to oust Rajan.

Rajan remains a popular choice to get a second term and Prime Minster Narendra Modi and Finance Minister Arun Jaitley are said to be on good terms with him.

This is helped by the fact that the RBI and finance ministry are on the same page on a number of issues, including fiscal consolidation and inflation targeting.

From the government’s side, minister of state for finance Jayant Sinha is said to have been put in charge of taking feedback from stakeholders on a second term.

Sources say the responses have been in the governor’s favour.