‘Cant Have It Both Ways': RBI Governor Raghuram Rajan On Low Inflation And Policy Rates

20/06/2016 7:46 PM IST | Updated 15/07/2016 8:27 AM IST
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Governor of the Reserve Bank of India Raghuram Rajan attends a press conference in Mumbai, India, Tuesday, Dec. 1, 2015. Rajan on Tuesday kept key rates unchanged citing multiple factors, according to news reports. (AP Photo/Rajanish Kakade)

In his first public appearance after announcing the decision to not to take up a second term at the RBI, Raghuram Rajan on Monday maintained the central bank’s focus was on fighting price rise and that it was not possible to have both lower inflation and policy rates.

“Cant have it both ways, want lower inflation as well as lower policy rates,” Rajan said in a speech, responding to criticism for maintaining a stiff interest rate regime.

Under attack by many in the government for keeping interest rates high, Rajan clarified on the monetary policy decisions he took and justified his stand on fighting inflation.

"The fact that inflation is fairly close to the upper bound of our target zone today suggests we have not been overly hawkish, and were wise to disregard advice in the past to cut more deeply," he said.

Rajan, the former International Monetary Fund’s chief economist, in his speech at the Tata Institute of Fundamental Research, hoped the incoming governor will continue the fight against inflation.

"In the days ahead, a new governor, as well as the members of the committee will be picked. I am sure they will internalize the frameworks and institutions that have been set up, and should produce a low inflation future for India," he said.

Rajan on Saturday expressed the desire to return to academia after his term ends in September this year. The 53-year-old was roped in by the UPA government in 2013 at a time when Indian currency was staring at major crisis and devaluation.

Calling for seamless coordination between the RBI and the government, Rajan said that targeting inflation will yield many rewards.

"Our currency has been stable as investors have gained confidence in our monetary policy goals, and this stability will only improve as we meet our inflation goals... The poor will not suffer disproportionately due to bouts of sharp inflation, and the middle class will not see its savings eroded," he said.

India cannot abandon inflation to focus on growth, he added.

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