How will the resignation of RBI Governor Urijit Patel affect the financial market?

It is a clear indication of government’s totalitarianist ideas and policies, which is competent enough to even quiver country’s foremost independent (and most reputed) institute.

And this is sufficient to shake investors’ confidence in the government.

Yet, the damage wasn’t as much as it should have been if looked at it in contexts with past such incidents.

One, because, news media didn’t care to give this very important development an intensive coverage. Many of them heartedly continued with their Hindu-Muslim propaganda. So, the retail investors, in particular, didn’t pay much heed.

Urijit Patel gave his resignation from the post of RBI Governor on Monday (10th December). The next day, polls’ results from 5 states were to grace the news channels in an oomph-ing way. So, that excitement, much to the joy of the ruling party, curbed the impact of Mr. Patel’s move.

(Courtesy: Business Standard)

Monday evening, right after the news came, Sensex fell by 713 points—the lowest close in more than a month. Against US Dollar, Indian Rupee fell to Rs 72.81.

Of course, this is a way too early to suggest that this development in the Reserve Bank of India won’t affect the financial market even worse. Once the dust is settled, many investors and participants will ponder over it and act according to it. Flow in the equity and debt markets can be slowed. A lot of attention will also be on the monetary policy. India risk premium may rise high due to uncertain future of RBI.

(Courtesy: MoneyControl)

In addition, one should also keep in mind the effect of the election result in 5 states. If the results are unfavorable, it might worsen the situation, magnifying the negative impact of Urijit Patel resignation on the financial market.

Also read: Why RBI is uncomfortable with a more active board?

And mind you, if things go any bad right now in short-term, don’t expect the market to recover in favor anywhere before General Election 2019.