Change of guard at RBI corner office roils rupee, but boosts bond yields

RBI

The appointment of a new Reserve Bank of India (RBI) governor roiled the rupee market on December 10, but the bond market cheered the change.

The rupee opened down at 84.7870 against the dollar from its Monday's close at 84.7212. The 10-year benchmark bond yield looked up in the early morning trade. The 10-year benchmark bond 6.79 percent 2034 opened at 6.6982 percent, as against 6.718 percent at close on the previous trading session.

The rupee has been on the falling trajectory since the last few months, and the RBI under the leadership of the Shaktikanta Das was trying to control the decline by intervening in the spot as well as forward market.

During 2024-25 (April-November), the Indian Rupee (INR) depreciated 1.3 percent largely due to pressure from a stronger US Dollar and selling pressure by foreign portfolio investors in October and November, Das said at the monetary policy review speech on December 6.

So far in 2024-25 (April-November), the INR remained the least volatile currency with the coefficient of variation at 0.4 percent among peer EM currencies, including the Chinese yuan, Vietnamese dong, Philippine peso, Indonesian rupiah, Chilean peso and Turkish lira.

Several emerging market currencies went deeper into the red against the greenback as the US currency gathered strength. The Vietnamese dong was down 2.1 percent, Philippine peso 4.2 percent, Turkish lira 6.7 percent, Russian ruble 14.1 percent, Brazilian real 16.6 percent, Argentine peso 15.0 percent, and Mexican peso 19.0 percent.

The Indian bond yields fell sharply since the start of the year due to heavy inflows from foreign portfolio investors, especially after the inclusion of Indian bonds in the JP Morgan global bond index.

On December 9, the Appointments Committee of the Cabinet cleared the selection of Sanjay Malhotra as next RBI governor for a period of three years. The 56-year-old bureaucrat will take over from Das on December 11 as the 26th governor of the Reserve Bank of India.

Malhotra is serving as the revenue secretary and is a 1990-batch IAS officer of the Rajasthan cadre. He has worked as the chairman and managing director of the state-run REC, and was instrumental in achieving the recent buoyancy in tax collections. The IIT-Kanpur alumnus holds a master's degree in public policy from Princeton University, US.

Das was appointed as the 25th governor of the RBI on December 12, 2018, after the abrupt exit of Urjit Patel. He was granted an extension after completing a three-year terms in office, with his extended term ending on Tuesday.