Mumbai : Within days of announcing his de facto exit, RBI Governor Raghuram Rajan on Monday hoped his successor will “stay the course” in fighting inflation and said the central bank has been “wise to disregard” calls for deeper rate cuts.
53-year-old Rajan was often criticized for keeping rates high to rein in inflation, which critics said stifled India’s economic growth. But he has been popular with foreign investors for his efforts to tackle inflation and rescue India from its worst finan-cial crisis in more than two decades when he took charge in 2013.
Defending his continued fight to bring down the consumer price inflation to low single-digits, Rajan also took on the “highly-indebted industrialists” saying banks were charging them high rates since there was a ‘premium’ on the implicit risk that they may not repay.
Remaining his outspoken self, even when he is on his exit path, Rajan said he would never abandon the fight against inflation for achieving higher growth and hoped that the next Governor and the new Monetary Policy Committee “will internalize the frameworks and institutions that have been set up, and this should produce a low inflation future for India.”
In his first public appearance after his surprise decision, Rajan put up a strong defence of his monetary policy stance. “The fact that inflation is fairly close to the upper band of our target zone suggests we have not been overly hawkish, and were wise to disregard advice in the past to cut more deeply,” he said. He was delivering a lecture at the Tata Institute of Fundamental Research here.
Rajan, a monetary economist who is credited to have predicted the 2008 global financial crisis, further argued that his detractors “cannot have it both ways — that is, want lower inflation as well as lower policy rates.”
Stating that perceived short term trade-off between inflation and growth is not sustainable — as is the popular belief — Rajan said a boom-and-bust cycle will not be good for the economy, because if the economy is producing at potential, we would quickly see shortages and a sharp rise in inflation. This means that a central bank can never abandon its inflation fighting objective.
Exuding confidence that his successor “will stay the course” in setting up the new MPC into an institution, Rajan said a “low-inflation future” awaits India when the government will be able borrow at low rates, and will be able to extend the maturity of its debt.
