RBI Governor Urjit Patel has to tackle 5 main challenges

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RBI Governor Urjit Patel has to tackle 5 main challengesWhen Raghuram Rajan handed over the baton to Urjit Patel, he also transferred in totality the bed of roses and crown of thrones from his share at the top of India’s federal bank.
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Newly-inducted RBI Governor Urjit Patel will have to deal with a slew of challenges.

Patel has already focussed on the Monetary Policy Committee (MPC), that determined interest rates to meet inflation target.

It is largely understood and as experts including former RBI Gov Duvvuri Subbarao have maintained, the new governor's legacy will be determined by how he institutionalises the monetary policy framework, in particular the protocol and conventions he establishes for the functioning of the monetary policy committee and how he manages inflation targeting at a time the growth-inflation tension is baring its fangs.

Here is an overview of expectations that Patel will have to meet:

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1. Interest rate: After assuming office, the first task in front of the new RBI chief will be taming inflation and cutting down the interest rates at the same time to ease liquidity into the system. Patel will have to walk the tightrope, keeping the Centre’s interest in consideration of stimulating growth in the country and fighting an obstinate inflation.

2. Banks clean-up: This was one of the major initiatives taken by Rajan and he will have to push the Indian banking sector to clean up their balance sheets and reduce bad debt.

3. Inflation: It will be challenging to achieve the 4 per cent inflation target when commodity prices start rising. The idea is to bring inflation down to 5 per cent by January 2017 and eventually keep it between 2 per cent and 6 per cent.

4. Monetary Policy Committee (MPC): Patel will be the new governor to make his policy stance under the new framework of the Monetary Policy Committee. This should not be a problem with him as he is close to Modi.

5. Foreign Currency Non-Resident: The new governor will have to address the FCNR outflows on the Indian Banking system which is at the nascent stage.

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(Image: Indiatimes)