London: Inflation remains “fairly sticky” and above the comfort level of the RBI, Governor Raghuram Rajan said — comments that may dash hopes of any immediate lowering of interest rates by the central bank.
At the same time, Rajan also exuded confidence about a robust pace of economic growth and said there was no need to borrow in dollar from overseas markets as there were no problems on borrowing in domestic currency.
He also promised greater access to the foreign investors to the rupee bond markets in India. “We have been increasing that (access) every six months and as we feel more confident about the pace of the economy and the prospects for the global economy and no surprises, we will look at that,” he added.
Rajan has often linked his monetary policy actions to the retail inflation, which soared past 5 per cent level in April, as per the latest government data released yesterday. The industry has been demanding further rate cuts by RBI to boost growth. The central bank is scheduled to hold its next monetary policy review meeting on June 7.
Speaking here at the Chicago Booth Business School today, Rajan said, “Broadly, core inflation has been fairly sticky, a bit higher than we would want. It has not moved up and down. We will continue on the task of anchoring expectations.”
He, however, exuded confidence in the recovery of Indian economy and pinned his hopes on a good monsoon. “We are at the beginning or maybe in the midst of a slow recovery. The signs of faster growth are there… A good monsoon would accelerate the process of recovery.”
Rajan also sought to allay concerns over the bad-loan crisis and said banks have now got instruments to deal with this problem with the passage of the new bankruptcy law.
“I am hopeful the clean up will happen and create the necessary room for the banks to lend,” he added. Rajan, who has previously served as the Chief Economist of the International Monetary Fund (IMF), further said, “I see absolutely no reason for the sovereign to issue dollar bonds across the world.”
“When India can borrow freely and long-term in domestic currency, there is absolutely no reason for it to go out and start a dollar borrowing programme. We will continue to borrow locally.”
“The lesson for all of us is make sure you get fundamentals right and don’t get too reliant on foreign capital,” he said, while adding it was not critical to the country’s development.