Free Press Journal

Rajan says no differences between RBI, govt on India growth revival


MUMBAI – There are no differences between the Reserve Bank of India and the government on reviving growth in India, with the central bank “committed” to getting the “strongest growth possible”, Governor Raghuram Rajan today said.

“We believe the best way we can foster sustainable growth in the current situation, other than through developing the financial sector, is through monetary stability–by bringing down inflation over a reasonable period of time,” he said, delivering the inaugural speech at the Fixed Income Money Market and Derivatives Association of India-Primary Dealers Association of India Annual Conference.

Rajan said inflation had to be fought in order to generate sustainable economic growth, and that the RBI had raised its policy repo interest rates thrice since September to curb the inflation spiral before it gains momentum. After taking over as governor, Rajan has raised the repo rate by 75 basis points to 8.0% even as concerns over India’s economic growth remain, with private investments not showing any signs of improvement.

Rajan, however, said that higher interest rates were not the primary factor holding back investments. But Rajan ruled out a dramatic hike in policy rates to curb inflation. “While this may lead to a collapse in demand and bring inflation down quickly, it will cause significant damage to the economy…Rather than administer shock therapy to a weak economy, the RBI prefers to disinflate over time rather than abruptly,” Rajan explained.