MUMBAI - Indian stocks and bonds closed higher on Wednesday after the government moved quickly to calm markets and appoint a new central bank governor whose predecessor quit after a months-long tussle over policy.
The rupee weakened slightly, however, in response to a sharp rise in global crude oil prices which threatens to aggravate India's current account deficit.
The appointment of ex-finance ministry official Shaktikanta Das on Tuesday as the new Reserve Bank of India governor came a day after Urjit Patel resigned from the post following clashes with the government, which wants more economy-boosting measures ahead of a general election, due by May.
In his first press briefing after assuming office, Das said he would adopt a consultative approach and move quickly to meet state-run bank chiefs and other parties to tackle issues facing the banking sector.
Traders said the comments were being viewed as positive and were in line with market expectations.
The benchmark 10-year bond yield ended at the session low of 7.41 percent, down 12 basis points on the day.
The partially convertible rupee closed at 72.0150 per dollar compared with its previous close of 71.84, after initially dropping to a low of 72.20 at the open tracking oil prices.
"The appointment of the new governor is likely to calm investors and ease any uncertainty about the next head of the central bank," economists at HDFC Bank wrote in a note.
Some market participants said rate cut bets had increased following the appointment of Das, with some expecting a cut in interest rates as early as April.
Both the broader NSE index and the benchmark BSE index ended 1.79 percent firmer.
"The negativity from Urjit Patel's abrupt resignation has been offset by the speedy appointment of a new governor," said Deepak Jasani, head of retail research at HDFC Securities, adding that people were now looking forward to less friction between the RBI and the government.
"Those who withheld buying because of uncertainty are now back in the game. Going by the volumes in individual stocks, there is some also FII (foreign institutional investor) nibbling happening."
Traders and analysts broadly expect the central bank's monetary policy stance to gradually shift towards neutral as inflation readings have been subdued in recent months.
Inflation is expected to ease to a 16-month low in November, according to a Reuters poll, as food and fuel prices fell. Data is due to be released after the market close on Wednesday.
RBI watchers said they expected the 61-year-old Das to put relations between the Mumbai-based bank and the finance ministry in New Delhi on a more stable footing.
Das retired last year as secretary of the department of economic affairs, having previously served on the RBI's board.
He was a strong advocate of slashing rates during his tenure, said Sue Trinh at RBC Capital Markets in Hong Kong.
But investors are watching closely to see how he holds up against outside influences after recent efforts by the government to gain greater control over the central bank's regulatory powers, raising concern over its independence.