- Rupee turns red after central Banker bails
- Speculation rife of government pressure on RBI
- Rupee even weaker than Brexit-bludgeoned Pound
The Rupee underperformed its peers on global currency markets on Monday, December 10 following news the head of Reserve Bank of India, Urjit Patel, has resigned midway through his tenure.
Patel's early resignation, though ostensibly for “personal reasons”, stoked speculation the real reason for his departure had been a worsening rift between the Indian government and the RBI.
The news comes after reports of increased pressure from the government to persuade the RBI to introduce more ‘growth-friendly’ policies.
These include relaxing policies on non-performing loans, helping to increase lending to small businesses and generally lowering interest rates for the whole economy.
Quite apart from the fact the RBI is an independent organisation, the central bank has countered it would not be good practice for it to lower interest rates with inflation still running so high.
It has also been reluctant to pressurise state-owned banks to lend more generously to SMEs because of the financial stability risk caused by India's relatively high rate of non-performing loans.
The untimely resignation suggests the government was redoubling pressure on the RBI, perhaps because of fears the economy could be slowing down more than previously thought.
Markets look unkindly on any government interference in central banks, particularly when it comes to those of emerging market economies.
The Rupee had fallen but over 0.7% versus the Pound to an exchange rate of 91.50 at the time of writing. The fall was all the more remarkable for being against Sterling which was also falling.
GBP/EUR had fallen almost a whole 1% at the time of writing and was trading in the 1.10s after news the government had delayed the commons vote on the withdrawal deal.
Sterling declined in almost all of it major pairs on devaluation concerns linked to a 'no-deal’ Brexit after the delay as investors fear further delay could increase chances the UK will have no other option than to crash out of the EU without a deal on the March 29 deadline.
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