BENGALURU: Touted as one of the best in the business, Raghuram Rajan is a tough act to follow, but few are as well equipped as Urjit Patel to step into his shoes. PM Narendra Modi appointed Urjit Patel as the 24th Governor of the Reserve Bank of India ending months of skepticism and speculation about the successor to the high profile Raghuram Rajan, signaling that prudent monetary policy will continue to be the norm, calming investors.  His appointment has generally been welcomed, reflecting an appreciation of his impressive record and wealth of practical experience.

He’s taking over at a time of relative calm and the markets are not volatile enough to test his fire-fighting skills. This gives him ample time and space to devise and chart an agenda for the future. Given below is a list of five challenges before the new RBI Governor Urjit Patel.

Appointing the Members of MPC

One of his important tasks would be to appoint a Reserve Bank nominee on the broad-based Monetary Policy Committee (MPC) which will decide on the interest rate with a view to maintaining inflation at 4 percent. Half of the six-member MPC will come from Reserve Bank and the remaining will be nominated by the government. Outgoing Governor Rajan appointed Patel and Michael Patra as RBI nominees to the MPC which will be headed by the Central Bank Governor himself.

Keeping a Check on Inflation

The government is anticipating an inflation rate of 4 percent over the next five years, based on which the MPC would take its monetary policy decisions going forward. The move, which takes into account a margin of plus or minus 2 percent fixed the upper tolerance level at 6 per cent till 2021. This move is being seen as a move by the government to put a seal of approval on outgoing Governor's inflation-first model of monetary policy.

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