How Patel’s reticence affecting mkts, economy

Denny Jose, a small-town caterer in the southern Indian state of Kerala, was closely watching the Reserve Bank of India (RBI) meeting last week.

Newspapers and markets were forecasting the RBI would cut its key rate by a quarter of a percentage point. But the RBI held rates and moved to a ‘neutral’ policy stance, signaling an end to the country’s longest monetary easing cycle since the 2008-09 global financial crisis.

The move surprised Jose and crimped his expansion plans.
“We were planning to buy two commercial vehicles to transport food and were expecting a rate cut. Now, we're forced to defer that plan.” He was not the only one wrong-footed.

Under governor Urjit Patel, the RBI has significantly reduced communication with markets after he took over in September, an analysis of his public comments shows.

Some critics say that a lack of clarity is pushing bond yields higher, and that in turn could send interest rates higher and restrain economic growth.

A government source familiar with the RBI's thinking said that with modifications to the laws governing the bank and the introduction of a monetary policy committee, the governor was no longer sole arbiter of policy as prior RBI governors had been.

His views would not be reflective of the entire MPC, added the source, who declined to be named. In an interview televised earlier this week, Patel told CNBC-TV18 that the RBI was open to valid criticism.

"It's important that one grows thick-skinned fast in this business and I think we have done that," Patel said.

"We have gone about our work. We had undertaken major challenges during these past few months and valid criticism is something that we are open for and we take it in the spirit in which it is given and try to improve ourselves."

Central bankers around the world keep moves in benchmark interest rates a closely held secret before they are announced, but governors and other senior policy makers tend to guide markets, helping to avoid surprises that may cause volatility.

In his first five months in office, during which Prime Minister Narendra Modi abruptly abolished high-value currency notes and roiled economic activity, Patel gave nine public speeches or press conferences, according to Reuters analysis.

That was well below the level of his two predecessors in comparable periods of their tenures. Moreover, Patel has presided over three rate decisions so far, and a majority of economists polled by Reuters before the decisions got it wrong each time.

"The government's trying to boost growth that's been hit by demonetization, but central bank communication is working in the opposite direction," said a senior Mumbai-based treasury banker, who asked not be named.

Some market watchers say it is early in Patel's tenure. "He is dealing with ... the most radical executive decision in modern India's monetary history. In all fairness many are being too harsh on him," said Nishant Berlia, management board member at Apeejay Stya investment group.