Reserve Bank of India (RBI) Deputy Governor Viral Acharya has resigned six months before the scheduled end of his term in office, citing personal reasons, the central bank said on Monday, confirming a media report.
Acharya had clashed with Prime Minister Narendra Modi‘s government over an erosion of the central bank’s independence.
His resignation would also mean the RBI is likely to be more dovish over monetary policy and willing to cut interest rates, economists said. Acharya, who is in charge of departments that look at monetary policy and exchange rate markets, had been regarded as more of an inflation hawk.
Acharya submitted his resignation letter a few weeks ago saying he was unable to continue his term beyond July 23 due to unavoidable personal circumstances, the RBI said in a news release. “Consequential action arising from his letter is under consideration of the competent authority,” the RBI said.
The Business Standard newspaper had reported earlier on Monday that Acharya had resigned and would be returning to the New York University Stern School of Business in August instead of February next year.
Pressed for further comment on the reason for his resignation, Acharya told the Business Standard: “A schoolteacher once told me: ‘When your work speaks for itself, do not interrupt’.” Acharya’s resignation has been talked about as a possibility since governor Urjit Patel’s sudden departure in early December.
Under the Narendra Modi-led government, Acharya is the third senior central bank official to resign, following former RBI governors Raghuram Rajan and Urjit Patel. Acharya blew the lid on the tensions between Modi’s government and the RBI in a scathing speech in October.
Staunchly defending the need for central bank independence, Acharya made public disputes with the government over issues ranging from lending curbs, more cash availability to non-banking finance companies (NBFCs), and who controls the RBI’s reserves.
“The risks of undermining the central bank’s independence are potentially catastrophic,” Acharya said in his October speech, adding that rash moves could trigger a “crisis of confidence in capital markets”.
Acharya was appointed as a deputy governor by the Indian government towards the end of 2016 for a term of three years.
“Dr Acharya’s departure is not a complete surprise, as frictions between him and the government on issues related to central bank independence had come to the fore,” Nomura economists Sonal Varma and Aurodeep Nandi wrote in a note. “At the margin, the composition of the monetary policy committee will likely become incrementally more dovish, in our view, as Dr Acharya stood on the more hawkish side of the policy spectrum.”
Traders and economists said the focus would now shift to who the replacement for Acharya would be, while markets are also awaiting a report on the transfer of excess RBI reserves and on the federal budget on July 5.