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‘We’re vigilant owls, not hawks or doves’

Inflation is also a tax that is grossly inequitable, falling hardest on the very poor: Rajan

Mumbai | Published: January 29, 2014 2:52 am

RBI Governor Raghuram Rajan on Tuesday said monetary policy can contribute to reviving consumption and investment in a sustainable way only by bringing down inflation to a low and stable level. “Inflation is also a tax that is grossly inequitable, falling hardest on the very poor,” Rajan said after unveiling the monetary policy. Excerpts:

ON INFLATION AND INTEREST RATE: “The juxtaposition of growth and inflation is not correct. Even if we cut rates, banks won’t cut rates as inflation is still high. We have to get away from the fact that there is a magic wand. The notion about inflation being irrelevant has to be revisited. We are confident we will bring down inflation within more tolerable limits. Let’s first fight the fight that needs to be fought.”

ON WITHDRAWAL OF NOTES ISSUED BEFORE 2005: “It is not intended to get at black money, tax evasion, etc. I am not saying those are good things. This is technical action, in order to withdraw notes which have fewer security features than new notes. It is an attempt to reduce the possibility of counterfeiting and give more reliable notes at the hands of the public. We have no doubt we are in a constant race, we have to keep improving the security features and counterfeiters keeps trying to figure out how to do that. Notes will continue to be withdrawn. I have no doubt today’s note will be withdrawn at some point.”

ON COMMENT THAT RATE HIKE WAS HAWKISH WHILE GUIDANCE WAS DOVISH: “We are neither hawks, not doves but we are owls, vigilant when others are resting. An owl is traditionally a symbol of wisdom. The broad point is that don’t try and put us into buckets. We are doing what is necessary for the economy. Last time, we needed to convey the signal that we are ready to act. This time, we have acted. We will take action on the rate cut front whenever the situation warrants.”

PATEL PANEL PROPOSALS: “The RBI is studying the recommendations of the panel on monetary policy and complete implementation of its report will need a dialogue with the government. The panel’s timeline to bring down retail inflation seemed reasonable and the 8 per cent retail inflation target can be reached by the end of the year. It is premature to say the RBI is moving towards inflation targeting. We’ve not accepted Patel committee’s inflation target. We are looking into it. We will take up with the government what we need to do.”

RBI’S FOCUS AND ACTION: “Last time the decision (on rates) was close, but we chose to wait. This time, too, the decision was close, but we decided to act. At this point, we think we had to deliver some medicine which we have done. Let’s see how it goes. We have to wait and see, given the external as well as domestic uncertainties. The primary focus is not the markets; it’s the Indian consumer.”

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