According to ICICI Bank non-executive chairman KV Kamath, the Reserve Bank of India or RBI earlier made the mistake of saying it did not have the tools to defend the rupee, but Dr Rajan's strong policy stance helped the currency recover.
"In the past, the mistake we have done is to say we have no tools (to defend the rupee). I think the main difference what I've seen in the approach is that Raghuram Rajan has taken is to say that we have tools, that single statement made by a central bank Governor can make the markets take watch," Mr Kamath said. (Watch: Video)
When the rupee was in a free-fall, even analysts had told NDTV that the RBI does not have the fire power to defend the rupee.
The rupee had hit an all-time low of 68.85 on August 28, but has since recovered after Raghuram Rajan, dubbed "The Guv" took over as the central bank Governor.
When the rupee was depreciating sharply, hitting a new-low almost every day, Moses Harding of IndusInd Bank had told NDTV, "The RBI should remove importers fear and exporters greed. Importers fear further depreciation in the rupee, so they are buying their long term payables and already corporates have shifted their loan exposure from rupee to dollar."
The rupee in the last month has gained almost 3 per cent, having shed around 15 per cent in the last six months.
Raghuram Rajan took over from former Governor D Subbarao on September 4.
Since taking charge Dr Rajan has reversed some of the steps taken by the former Governo r to stem rupee volatility, which include relaxing Marginal Standing Facility (MSF) rate or overnight lending rates thus making it easier to access liquidity.
The 'Rockstar' Governor, however, sprung a surprise by hiking repo rate- the rate at which the RBI lends short-term money to banks by 0.25 per cent in his maiden monetary policy.
"I see clarity in what he has done...for example he has hiked repo rate and he has given a signal very simply to the market that I (Rajan) am going to watch the long-term rates very carefully and I think there needs to be a correction in the short-term interest rates and I (Rajan) will do it in a calibrated manner," Mr Kamath said.
Rupee hitting 68.85 had left Mr Kamath "really worried" he said adding that the current levels of around 62 are "not so worrying". The rupee on Wednesday closed in the green at 62.44.
"Rupee will find its own level...it ought to find its own level not driven by other manipulators who have bee n actually playing in the market. I think a strong statement on this has had its impact.
"I think speculators are also a careful lot, they will only play around only when they think there is nobody to check them. But if there's somebody who can check them they'll hesitate and I think that has happened, Mr Kamath said.
Lauding Dr Rajan's efforts, MR Kamath said, "We could not have a better man at this point in time to be in that seat. He is a thinker, he is a practical man, very quickly understood what is happening in the economy."
via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNHy5DT64nNuixN1xRbmr0bXOQLTsw&url=http://profit.ndtv.com/news/economy/article-what-rajan-did-that-subbarao-couldnt-327677
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