Will have room to cut rates if inflation stays at 5%: Raghuram Rajan

Welcome genuine criticism of our policy but will not address ad hominem attacks, says RBI Governor.

By: ENS Economic Bureau | Mumbai | Published:June 9, 2016 2:47 am
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A day after keeping the key repo rate unchanged at the monetary policy review, RBI Governor Raghuram Rajan on Wednesday said the RBI will have more room to cut interest rates if the central bank gains confidence in reaching its 5 per cent target for consumer price inflation (CPI) by March 2017.

The current repo rate of 6.50 per cent is “appropriate” and the central bank has used up all its “space available” to cut interest rates, pinning further easing on inflation, Rajan said in an interview with TV channel CNBC Awaaz. “If we get confident of achieving 5 per cent inflation target by March 2017 then we will get more space to cut,” Rajan said.

“(I) want to emphasise that we shouldn’t get complacent in India. We have a lot to do. It will be wrong for us to beat our chest and say we are best in the world. I don’t think any minister would say that. We are a country which is growing reasonably strongly, but we have a long way to go even on the basis of our own potential,” Rajan told NDTV. “We have some way to go. I am not saying that economy is where it should be. We do have work to do. We can celebrate when we see private investment strongly back on track and I think we are capable of much stronger growth that we have right now,” Rajan said.

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“I would hope that with good monsoon, strong rural demand, with more animal spirit and public investment picking up pace … I think with all that coming together there will be need for private investment,” he said.

When asked about the intense speculation about his tenure, Rajan said: “Won’t answer on second term but long-term intent is to return to academia. My ultimate home is in the realm of ideas. A lot of people these days are writing my obituary in the papers … gives me time to reflect on what remains to be done.” He refused to be drawn into the charges levelled by BJP MP Subramanian Swamy. “When there is criticism there is also the other side. Unknown people have written me letters. My unions have supported me. Certain allegations (are) so fundamentally wrong that to address them is to give them legitimacy they don’t deserve. (I) welcome genuine criticism of our policy but will not address ad hominem attacks.”

“My mother-in-law always says be a karmayogi. My work shows my love for my country,” he told NDTV. On the high GDP figure of 7.9 per cent in the quarter ended March 2016, Rajan said, “I am happy with GDP numbers… give or take one per cent… happy that GDP change is consistently positive. With growth numbers statisticians have done as good a job as they can. GDP growth is significantly high since costs have come down.”

Talking about his policies, he said, “my decisions are based on analysis and consultations. I go to sleep well at night except when I am jet-lagged. I try to do what I think is right; my work is hard work, it’s not glamour.”

On his relations with the government, Rajan said, “one obviously listens to advice from government, but can’t succumb to wishes of any party. My conversations with Arun Jaitley are extremely cordial; we respect each other’s position. It may surprise you but I have not had even one serious disagreement with Arun Jaitley.”

Regarding wilful defaulters, Rajan said, “We will make the list of willful defaulters public, but you will chill all risk taking if you name and shame business people who make business decision that went awry. When you give a personal guarantee, your assets are banks’ property. In that circumstance when you have lavish displays you are basically using public money.”

“Banks can’t lend at 4 per cent and pay 6 per cent on deposits. People want rates down, but will they deposit at 4 per cent? No. Low interest rates is not a God-given right,” he said about interest rates.

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