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Central bank governor of the year 2014: Rajan emerges unscathed from Indian baptism of fire

Reserve Bank of India governor Raghuram Rajan’s tough monetary medicine combatted the storm ravaging the deficit-ridden economy in the recent emerging market crisis. Now, he is battling vested interests to arouse a sleepy financial system for over one billion people.

The most effective modern central bankers deploy an old-fashioned virtue in the teeth of market distress: stoic calm. Few, however, have articulated this ethic with as much clarity and charm during a trial by fire as Indian central bank governor Raghuram Rajan. As Fed-tapering fears triggered investors to punish India for its fiscal and current-account deficits last year, Rajan, during his maiden speech on September 4, cited excerpts from Rudyard Kipling’s classic poem ‘If’ as a paean to the steely resolve of a central banker.

As he confronted capital outflows, the rupee at record lows, and over-blown, but palpable, fears India was marching towards an Asia-crisis-style abyss, Rajan duly administered tough monetary medicine to ailing bond and currency markets.

Remarkably, the internationally-renowned economist, who earned acclaim for his warnings in 2005 of an upcoming global crisis of sorts, has, for the past year, been true to his word while charting India’s exit from the group of ‘fragile five’ emerging market economies.

The former Chicago economist immediately boosted market transparency by clarifying the RBI’s policy direction in favour of inflation-targeting, while opening a swap window for deposits from nonresident Indians and allowing banks to borrow more overseas, all in a bid to court badly-needed capital.

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