Rajan’s 2-years at RBI extremely valuable for Indian economy: D&B

Amid concerns in India and other global markets about uncertainty over a rate hike in the USA, RBI Governor Raghuram Rajan on Friday sought to play down fears saying markets should not be scared of volatility as it would be transient in nature.

He also said that the concerns about market volatility should not come in way of the decision of the central banks. With reserves adequacy strength having improved materially, an incremental rate cut of 25 basis points is unlikely to pose any significant threat to the financial market and exchange rate stability, it added. RBI’s next monetary policy review is scheduled on September 29.

“We risk, as central banks, being trapped in a prisoner’s dilemma: nobody wants to be the first to leave this extremely accommodative situation”.

Bringing the retail inflation down to 3.8 per cent in July from 9.8 per cent in September 2013, Governor Rajan now faces the challenge for rate cuts with the finance ministry raising alarm bells over the deflation demon in the economy.

Rajan said RBI’s policy process involves trying to “take the heat away from the political economy and put it on frameworks, technical models, projections, etc, and say, “What we are doing is disinflation without worrying too much about distribution”.

A rate cut can benefit private sector credit growth, which has hit a multi-decade low, as per RBI’s latest data.

“Product development requires exposure to and experience in the global market”.

Reserve Bank of India Governor Raghuram Rajan has said that the role of politics and history is a little-discussed but important force in determining the goals and tactics of economic policy makers, according to media reports.

He also warned that the central banks globally might have engendered excessive fragility in the system.

Pointing to the very low interest rate policies of the US Federal Reserve, the Bank of Japan and the Bank of England in a bid to stimulate their economies, Rajan has been warning that emerging markets are especially vulnerable to big shifts in capital flows triggered by the unprecedented monetary accommodation in rich countries.