India’s rupee headed for its biggest decline since January after central bank Governor Raghuram Rajan said he will be leaving the top position when his term expires in September.
Rajan on Saturday announced he’ll be stepping down when his term ends September 4 and go back to academia, in a letter written to Reserve Bank of India’s staff. That put to rest months of speculation surrounding his future after he was criticized by Subramanian Swamy, an outspoken lawmaker with a large Twitter following who said Rajan was “mentally not fully Indian” and kept interest rates unnecessarily high. International investors including Western Asset Management Co. and Schroder Investment Management Ltd. had said his potential departure was a risk to the rupee.
The rupee weakened 0.7 percent to 67.5350 a dollar as of 9:07am in Mumbai, on course for its biggest drop since January 4, according to prices from local banks compiled by Bloomberg. It fell to 67.66 earlier, the lowest since May 24. The currency has slid 2 percent this year, making it Asia’s worst-performing currency. Indian sovereign bonds declined, with the yield on notes due January 2026 climbing four basis points to 7.54 percent.
“Given the uncertain global environment with the upcoming Brexit vote and a potential Fed rate hike, having someone like Rajan who has huge credibility stepping down at this time will not help confidence,” said Khoon Goh, a senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. Markets are seeing “it as a disappointment.”
A gauge of the rupee’s one-month implied volatility jumped 34 basis points to 7.03 percent. It last week climbed the most since August, as prospects that Britain would vote at this Thursday’s referendum to quit the European Union roiled financial markets.