Central bankers generally don’t become market darlings, unless, of course, you are Alan Greenspan . The former Federal Reserve chairman was an overwhelming investor favourite for much of his tenure thanks to his free market, laissezfaire philosophy and the widespread perception about his and the Fed’s willingness to intervene in the securities market to stabilise prices, a perception that Greenspan himself helped create.Before Greenspan, there was Paul Volcker , the architect of a series of rate hikes in the early 1980s that is widely believed to have broken the back of inflation and set the American economy on the course of growth and prosperity. But while Greenspan got a lot of plaudits for the way he handled the turbulence of the 1990s and the aftermath of the dotcom bust and 9/11 disaster, Volcker is still remembered with some bitterness for the pain caused by his credit squeeze.One reason for this phenomenon could be the fact that tough monetary policy actions involving rate increases and credit squeeze are often unpopular. Monetary economists would say that such actions are needed but the impact on companies and consumers is often severe. Volcker took the Fed funds rate from 10% to 20% causing small businesses to close down and the unemployment rate to ratchet up. In parts of America, there were ‘Wanted’ posters targeting Volcker for killing small businesses in some parts of America. Raghuram Rajan , India’s central bank governor , had a similar baptism by fire when he took over in September 2013. The Indian rupee was in a free fall, stocks were volatile and foreign investors were fleeing in droves. In just three months, Rajan engineered a dramatic turnaround by announcing firm measures to tackle volatility, reverse investor confidence and increase inflows. A series of time-bound initiatives were announced to address financial inclusion, prepare a monetary policy framework and put in place tough new rules to tackle promoter malfeasance and bad debts. Rajan saw an opportunity to change the way RBI functioned, its way of communication and strengthen the regulatory process without diluting the basic economic freedom that is as much an entrepreneurial right as anything else.The response from the markets was immediate and dramatic. The rupee jumped 6% from levels as low as 68 to a dollar to about 61-62, foreign investor inflows improved and the equity markets roared back to life. One advisor who interacts with FII institutional clients said that FIIs like what they see in Rajan, a man of impeccable integrity and credibility who builds institutions and processes and is incredibly focused and resourceful.The impact of what Rajan started on that fateful day in September 2013 is still with us today. A weak rupee makes imports costlier. A stable currency makes it more attractive for investors.The rupee has been remarkably stable since then weathering not only the withdrawal of US stimulus but also the emerging market currency chaos caused by the strengthening dollar. FII flows have surged not just in equity but also in debt as investors recognise Rajan’s focus on reducing volatility. For instance, FIIs sold Rs 22,638 crore in June-August 2013 but bought Rs 53,862 crore in Sept-Dec 2013.The fact that inflation has fallen off the cliff is probably not just due to Rajan. Global commodity prices have fallen, the BJP-led government has been remarkably restrained in administrative price hikes and, third, but perhaps more importantly, rural wage inflation has slowed.Rajan probably had little role to play in all this but this is only half the story. Investor sentiment is as much a result of data as perception. Rajan’s refusal to back down from his stance, his insistence despite pressure that fighting inflation must be the central bank’s top priority is music to investors used to ad hocism and arbitrariness.To a foreign investor, especially macro funds who take a country view, lower inflation and a stable currency are essential prerequisites for investing. Inflation erodes competitiveness, while a volatile currency means extra risk. As we enter the 18th month of the bull run, the Sensex has touched 30000. Depending upon government measures and corporate earnings, it may rise further.Prime Minister Narendra Modi and his ambitious policies and economic programme have got much of the credit for the rally. A lot of it is well deserved.Investors need to believe in the ability of the government of the day to deliver and this they continue to do. There is no taking away from the fact that Modi government has induced a major perception shift as regards India. But as they savour the benefits of this long rally, investors may want to spare a thought to the man who took the first essential steps to free India from the clutches of bad policy, unfocused thinking and lack of strategic depth. Governor Raghuram Rajan.