A Breath of Fresh Air at India’s Central Bank

Critics have called the resignation of India’s former central bank chief Urjit Patel and appointment of former Finance Ministry official Shaktikanta Das as his replacement a blow to the hard-won independence of the Reserve Bank of India. Such fears are overblown. The changeover at the RBI is something else entirely: an opportunity to rebuild the central bank’s badly damaged credibility with financial markets.

While Patel deserves credit for the RBI’s efforts to clean up bad loans at India’s public-sector banks, his supervision of monetary policy often frustrated and confused economists and market participants. Under Patel, the RBI’s media and analyst briefings grew increasingly opaque. When setting rates, the bank couldn’t seem to decide whether to use headline or core inflation as a judge. Either way, Patel’s RBI consistently overestimated inflation, while adopting a new definition of real interest rates to suit an apparent hawkish bias.