India’s central bank governor Raghuram Rajan, who has faced criticism from members of the ruling party for keeping interest rates too high, stunned officials on Saturday by announcing he would step down when his term ends on Sept. 4.
Rajan, a former chief economist at the IMF, has been popular with foreign investors for his efforts to tackle inflation, and won praise for helping rescue India from its worst currency crisis in more than two decades after taking the helm in September 2013.
But in a nearly 900-world letter to staff he said he planned to return to academia, even as he noted two of his actions—the creation of a monetary policy committee to set interest rates and the clean-up of the banking sector – remained unfinished.
“While I was open to seeing these developments through, on due reflection, and after consultation with the government, I want to share with you that I will be returning to academia when my term as Governor ends on Sept. 4, 2016,” Rajan said in the letter released by the Reserve Bank of India (RBI).
“I will, of course, always be available to serve my country when needed.”
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Rajan, who is on leave from the University of Chicago, was appointed RBI Governor by the previous Congress government, where he had served as chief economic advisor to the finance minister for about a year before taking the helm of the central bank.
“The Government appreciates the good work done by him and respects his decision. A decision on his successor would be announced shortly,” Finance Minister Arun Jaitley said in a tweet on Saturday.
Although feted by investors, Rajan he had faced strident criticism from right-wing members of Prime Minister Narendra Modi’s Bharatiya Janata Party, including parliament member Subramanian Swamy, who has waged a public campaign against his economic policies.
Rajan had also veered into topics—such as intolerance in society—that have angered some BJP members, as did recent comments that were seen by some government officials as playing down their economic accomplishments.
Still, Rajan was known to have a good working relationship with Modi, with the Prime Minister calling the RBI governor a “good teacher” on economic matters, and government officials had previously told Reuters that Modi’s administration would re-appoint the governor, should he wish to stay on.
Many of Rajan’s key accomplishments have come in close collaboration with the Modi government.
Rajan pushed for inflation targeting to tackle India’s history of volatile prices, which was then unveiled by the government last year.
He has also worked with the government on the creation of a monetary policy committee as well as the clean-up of heavily indebted banks—both of which may now have to be tackled by his successor.
Current RBI Deputy Governor Urjit Patel, State Bank of India chairman Arundhati Bhattacharya, the finance ministry’s Chief Economic Adviser Arvind Subramanian and the government’s Economic Affairs Secretary Shaktikanta Das have previously been named by analysts as potential replacements should Rajan depart.
Analysts said markets would likely react negatively on Monday, at a time when global factors such as Britain’s referendum on European Union membership are already weighing.
Though many analysts had speculated Rajan could decide not to pursue a second term, few had foreseen it would come in the form of a letter to staff.
Senior government and RBI officials contacted by Reuters said they had been taken by surprise at the announcement.
“This will be seen as a disappointment by the market particularly the international investors’ community,” said Ananth Narayan, regional head of financial markets for ASEAN and South Asia at Standard Chartered Bank.
“And we can only hope the government quickly announces a strong replacement to fill his big shoes.”