Market players are looking to whether the next RBI governor will carry on with Rajan’s monetary measures and structural reforms, such as cleaning up the banking sector.
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On the MPC, Rajan said an inflation-focused monetary policy framework means “better coordination between the government and the central bank as they go towards the common goal of macro stability”.
Most crucially, the next RBI governor must not be a “yes man” when dealing with the government.
Rajan assumed office in September 2013 in the midst of a crisis for the Indian economy.
“We will do what it takes to moderate market volatility”, he said to a question at an event of the Tata Institute of Fundamental Research here.
“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 to cut more deeply”, he said.
In a release, Thomas Rookmaaker, Director in Fitch’s Asia-Pacific Sovereigns Group, says, “In the past years, significant policy changes have been set in motion in India, not in the least by governor Rajan”.
Rajan indicated that he wanted to continue, which led to criticism of the government for purportedly creating or allowing the circumstances, including the attack on him by BJP MP Subramanian Swamy.
Rajan has cut the main policy rate INREPO=ECI by 150 basis points since past year, but has faced calls for more substantial easing. “They will now have to grapple with India’s “Rexit” and a possible “Brexit” in the next few days”. But you can fool all of the people only some of the time.
“Is the event positive or negative for the economy or for the RBI as an institution?” His explanation is pretty straightforward: low interest rates aren’t sustainable for economic growth in the long run.
Rajan has often been praised for containing inflation to a large extent and for forcing the banks to do a “deep surgery”.
“The RBI always sets the policy rate as low as it can, consistent with meeting its inflation objective”, he said, adding: “The RBI does not focus on inflation to the exclusion of growth”.
He addressed critics who have accused him of keeping interest rates too high.
One big mistake Rajan did was he failed to fathom the tolerance level of ruling political dispensation to criticism, especially on political matters.
A lack of support from the Indian government was a factor in the surprise decision of the country’s central bank chief not to seek a second term, according to reports.
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Even with Mr Rajan leaving, India’s world-beating economic growth and improvements to its current-account and fiscal deficits have made it an attractive investment destination.
