New Delhi: Outgoing Reserve Bank Governor Raghuram Rajan on Monday defended his record in fighting inflation and made a case for monetary policy reforms he has championed, in his first public appearance since announcing he will step down at the end of his tenure in September.
In a speech, Dr Rajan addressed critics who have accused him of keeping interest rates too high, saying they cannot “have it both ways, want lower inflation as well as lower policy rates.”
“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. Dr Rajan also hoped that the new central bank chief and the upcoming monetary policy committee will continue to focus on fighting 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 in a speech at the Tata Institute of Fundamental Research.
53-year-old Dr 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 financial crisis in more than two decades when he took the role in 2013.
When he joined the RBI in September 2013, India’s retail inflation was near double digits, forcing the central bank to keep rates high. Dr Rajan’s relentless fight against inflation led to sharp decline in prices, with retail inflation falling to around 5 per cent.
Dr Rajan today said that targeting inflation will yield many rewards and called for better coordination between the RBI and the government.
“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.