Rexit: Raghuram Rajan’s exit hits Rupee, Sensex; latest developments

After Raghuram Rajan’s surprise announcement to not to continue for the second term, the Indian equity and forex markets underperformed their global peers on Monday. On Saturday, Rajan had said that after his three-year term expires in September, he would return to academia. This announcement has put an end to all the speculations about his future as the Reserve Bank of India (RBI) Governor.

Here are the latest developments:

1. The rupee came down to its lowest in nearly one month today as it nosedived by 61 paise to 67.69 against the US dollar in the opening trade. It was predicted by the traders that the currency will fall by 15 to 20 paise. 

2. However, staging a modest recovery, the rupee pulled back to 67.40 per dollar. In the late morning deals, the rupee pared its initial losses, but was still trading down by 29 paise at 67.37 against the USD. Three traders told Reuters that the RBI was spotted selling dollars as a measure to curb the fall in rupee.

3. According to traders, Rajan’s exit has been seen as a major negative by foreign investors as he has been a key force behind the outperformance of Indian currency vis-a-vis other currencies. "The most notable aspect of his tenure was stemming the decline in the rupee, which has been one of the most stable emerging market currencies," said global brokerage Macquarie.

4. The Rexit also hit the stock markets with the Sensex plunging over 178 points in early trade today as financial stocks led decline. However, it recovered and traded in the green. However, in volatile deals, the Sensex recovered from its early losses and was trading higher by 70 points. Later, tt jumped 241.01 points to close at 26,866.92.

5. According to some analysts, Rajan’s departure from the central bank will provide a boost to equities as interest rates may fall further. "A decision not to renew Rajan would create a lot of unhelpful noise... it would be a negative for the currency but an initial positive for the stock market since it would mean easier monetary policy," said Christopher Wood of CLSA.

6. Taking the helm in 2013, Rajan has been popular among the foreign investors for his efforts to tackle inflation and helping to rescue India from its worst crisis in more than two decades. 

7. According to some analysts, markets are better off after the end of speculation around Rajan’s future as RBI Governor. "It is ridiculous for fear mongers to spread view of huge capital outflows on Rexit. No such thing likely. Just ride out Brexit," tweeted fund manager Sandip Sabharwal.

8. Analysts believe that any long-term impact is not expected after Rajan’s exit and now the focus will be on his successor. "The choice of successor must be based on finding a leader that will continue the new monetary project, targeting lower inflation," said the head of portfolio management for emerging Asia at PIMCO, Luke Spajic.