Indian markets are set to open lower on Monday
after Reserve Bank of India (RBI) Governor Raghuram Rajan unexpectedly said he
would step down in September, though the central bank is likely to step in to
support the rupee, analysts and traders said.
Traders
predicted the rupee INR=D2 would
likely fall by 0.15 to 0.20 rupees per dollar at the start of trading, but that
the RBI would intervene to prevent excessive volatility.
The
rupee closed at 67.0775/67.0875 per dollar on Friday.
The
10-year benchmark bond IN075926G=CC yield was seen rising 3-5 basis points
after closing at 7.50 percent on Friday, while shares were forecast to fall at
the open.
Any
volatility could be magnified given the surprise news that Rajan would step
down after just one three-year term comes ahead of a UK referendum on Thursday
about whether to leave the European Union, which has kept global investors on
tenterhooks.
Still, analysts said markets would stabilize as
investors await word on who will be appointed as the next RBI Governor, with
RBI Deputy Governor Urjit Patel and State Bank of India chair Arundhati
Bhattacharya seen as potential replacements.
"There
should be a knee-jerk reaction on the rupee," said Ashtosh Raina, head of
foreign exchange with HDFC Bank. "Then the market will normalize. I think
the government would already be on the job to find a suitable
replacement."
Rajan,
a former International Monetary Fund chief economist, has been popular with
foreign investors for his efforts to tackle inflation and helping to rescue
India from its worst crisis in more than two decades when he took the helm in
2013.
But
he has faced mounting criticism from a faction within Prime Minister Narendra
Modi's ruling party for keeping interest rates high and over a perception he
had begun to stray into politics.
A
senior official at a foreign bank said clients were already starting to call
him.
"There
are concerns. We have started seeing messages from foreign clients whether
politics has taken over central banking. They are asking what's happening in
India," he said, declining to be identified discussing conversations with
clients.
Still,
analysts said markets would likely withstand any initial volatility, and
expressed confidence the government would come up with an appointment that
could gain the confidence of investors.
"The
timing is certainly bad," said Rupa Rege Nitsure, group chief economist
with L&T Finance Holdings in Mumbai.
"I
have confidence in the credibility of the RBI as a public institution and I'm
sure whoever fills in his shoes will be able to shoulder the challenge with the
help of RBI 's internal talent and skills."
Representative
Image
Source: Reuters
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