Having faced a slew of attacks over speaking his mind on a range of issues, Reserve Bank of India Governor Raghuram Rajan, it now appears, has learnt the art of avoidance. As a result, he has prepared the stage for the new incumbent to play a symphony.
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The government last week formally adopted Rajan’s consumer price inflation policy of four percent in a bid to help moderate future price rises. While Rajan managed to cement his inflation targeting framework into law, Prime Minister Narendra Modi faces calls from within his own party to stimulate growth ahead of key state elections leading up to the next national vote in 2019.
“The monetary policy committee needs to be perceived as neutral”, said Shubhada Rao, an economist with Yes Bank Ltd.in Mumbai. “My sense is the chosen path will be one of credibility and continuity”.
“If the current softness in crude prices proves to be transient and as the output gap continues to close, inflation excluding food and fuel may continue to trend upwards and counterbalance the benefits of the expected easing of food inflation”, the RBI said. So, Rajan kept the benchmark repurchase (repo) rate at 5-year low of 6.50 per cent and the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent as well. There are also people who send me message in the plane.anonymous notes saying, “thank you for what you are doing”. “In hindsight, all mistakes have been because we were too pliant”, he added.
With a month to go, progress is evident on all fronts. Looking forward to the same growth pace in next policy reviews, he said that half of the six-member monetary policy committee (MPC) – three members each from RBI and outside RBI – are already in place and the Government will name its nominees shortly.
The Reserve Bank of India (RBI), in its third bi-monthly monetary policy review, left the repo rate unchanged.
During the past three years, Rajan has steered clear of demands for a rate cut, drawing criticism from sections of the industry and some politicians.
The central bank frets about the impact of the Seventh Pay Commission, which will raise government salaries. “I have a suspicion that some new concern will crop up once the FCNR (B) redemptions are behind us”, Mr. Rajan said.
As I leave the job, “I think 90-95% of what I wanted to do, is done”. “But those economic issues are perfectly within the remit of the central bank because ultimately we have a remit of macrostability”, he said.
India’s infrastructure output, which accounts for almost a third of the total industrial production, grew an annual 5.2 per cent in June, its fastest pace in two months, driven by a swell in output of cement, coal and electricity. Above-average rains in the annual June-September monsoon may provide some relief from surging food costs.
Defending these views, Rajan said, “That speech was about the fact that in order to grow as a country which is largely a service economy, we have to be open to ideas”.
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Retail inflation rose to 5.90 per cent in July from a year ago, up from 5.77 per cent in the previous month, the poll of almost 30 economists showed. “Snap judgements either by critics or supporters don’t really matter”.
