Hitting back at some of his detractors, RBI governor Raghuram Rajan said that the RBI was wise to disregard some advice to have more rate cuts.
“The RBI always sets the policy rate as low as it can, consistent with meeting its inflation objective. Indeed, the fact that inflation is fairly close to the upper bound of our target zone today suggests that we have not been overly hawkish, and were wise to disregard advice in the past to cut more deeply,” Rajan said.
“If a critic believes interest rates are excessively high, he either has to argue the government-set inflation target should be higher than it is today, or that the RBI is excessively pessimistic about the path of future inflation. He cannot have it both ways, want lower inflation as well as lower policy rates,” Rajan added.
Interestingly, these comments come only a couple of days after Rajan decided not to continue as the RBI governor. In a message to RBI staff, Rajan said that he would be returning to academia when his term as governor ends on September 4, 2016.
Rajan also expressed hope that the new governor as well as the monetary policy committee will help lower inflation. “The government has taken the momentous step of both setting a CPI-based inflation objective for the RBI, as well as a framework for setting up an independent monetary policy committee. In the days ahead, a new governor, as well as the members of the committee, will be picked. I am sure they will internalise the frameworks and institutions that have been set up, and should produce a low-inflation future for India,” Rajan said.
DH News Service
“The RBI always sets the policy rate as low as it can, consistent with meeting its inflation objective. Indeed, the fact that inflation is fairly close to the upper bound of our target zone today suggests that we have not been overly hawkish, and were wise to disregard advice in the past to cut more deeply,” Rajan said.
“If a critic believes interest rates are excessively high, he either has to argue the government-set inflation target should be higher than it is today, or that the RBI is excessively pessimistic about the path of future inflation. He cannot have it both ways, want lower inflation as well as lower policy rates,” Rajan added.
Interestingly, these comments come only a couple of days after Rajan decided not to continue as the RBI governor. In a message to RBI staff, Rajan said that he would be returning to academia when his term as governor ends on September 4, 2016.
Rajan also expressed hope that the new governor as well as the monetary policy committee will help lower inflation. “The government has taken the momentous step of both setting a CPI-based inflation objective for the RBI, as well as a framework for setting up an independent monetary policy committee. In the days ahead, a new governor, as well as the members of the committee, will be picked. I am sure they will internalise the frameworks and institutions that have been set up, and should produce a low-inflation future for India,” Rajan said.
DH News Service