New RBI Governor takes office today

Raghuram Rajan faces staggering problems from sinking rupee.

A former chief economist of the International Monetary Fund, Rajan must find a way to stanch the rupee’s massive loss of value over the past few months. The currency has plunged nearly 20% since May while India’s economy confronts its worst crisis since 1990. The government’s piecemeal efforts to stabilize the rupee have done little to halt its steep slide. It has fallen 10% since Rajan’s appointment on August 6. He succeeded Duvvuri Subbarao. Analysts said one thing Rajan can do immediately is explain to financial markets more clearly what steps RBI is taking and the thinking behind them. Investors and economists have complained that the RBI caused unnecessary confusion with some pronouncements. Another pressing concern for markets is whether Rajan plans to remove any of the conflicting measures RBI unveiled since mid-July to prop up the rupee. Economists have expressed concern these measures could further damage the ailing economy. India has the world’s third-largest current account deficit of about US$90 billion, high inflation and an economy projected by private economists to grow at about 4% this fiscal year, half the rate it was in 2008.