Raghuram Rajan is all set to take charge as RBI Governor at a time when the rupee is teetering, economic growth has slumped and CPI inflation continues to be at elevated levels. None of the problems above, can be handled only by the RBI. Most of the problems rest at the government's door and RBI can only play a supporting role. Here are 5 immediate challenges for the new RBI Governor.
Growth vs inflation
Raghuram Rajan has to decide how he is going to balance growth and inflation. Though WPI inflation is at a 4-year low, CPI inflation is in near double digits. Cutting repo rates will help growth, but, would also push inflation higher. A real predicament for the new Governor.
Calming the forex markets
While the rupee has plunged to a new historic low, Rajan would like to calm the volatility in the forex markets. It's not about preventing a rout on the rupee, but, more about reducing volatility, which scares foreign investors.
A big effort needed
Raghuram Rajan would have to oversee the grant of new banking licences and rules associated therewith. This is certainly not an easy task, though, it may seem so.
Encouraging dollar inflows
Rajan would have to look at encouraging dollar flows into the Indian markets to help support the falling rupee. Over teh last couple of months, billions of dollars have exited from the Indian stock and debt markets.
Growth at a decade low
Economic growth rates had only recently touched a new decade low. Through Monetary Policies the RBI governor can help support growth, though, bulk of the job would have to be done from the government's end.