Uncertainty over U.S. growth probably forced Fed to hold rates: Raghuram Rajan

Mumbai :Under pressure to cut interest rates to lower cost of capital, Reserve Bank of India (RBI) Governor Raghuram Rajan on Friday said keeping inflation low is the key task for sustainable economic growth of the country.

Commenting on US Federal Reserve’s decision not to raise interest rates, Sinha said: “I think the statements from (US Fed) chairman (Janet) Yellen indicated that she believes that it is going to take some time for these adjustments to happen, for asset prices and financial markets to deal with this new reality”.

There would definitely be a cut this month after U.S. federal rates have kept the interest rates on hold but India is ready to handle any kind of situation at the moment.

New Delhi: Appreciating the US Fed’s decision to maintain status quo, the Finance Ministry said it will provide space for monetary policy action and boost software exports.

Mr. Rajan, who described India as “an island of calm in an ocean of turmoil”, said other emerging countries, including Brazil, Russia, China and South Africa?members of the so-called Brics group of economies which includes the South Asian nation?have “deep problems”. Delivering the C K Prahlad Memorial Lecture here today, Rajan said that jugaad ends up encouraging an “attitude of shortcuts and evasions, none of which help final product quality or sustainable economic growth“.

The head of India’s central bank on Friday warned Asia’s third-largest economy against trying to grow too fast, pointing to the plight of recession-hit Brazil as a cautionary tale. RBI has said that inflation needs to be consistently low before it goes for a more accommodative policy stance.

Noting that global markets cheered the postponement of Fed lift-off and this could improve market sentiments temporarily, Kotak Institutional Equities said, “This short window of opportunity strengthens our call for a 25 bps rate cut by the RBI in the upcoming policy, amid comfortable domestic inflation dynamics”.

In case there was a rate hike by the US Fed on Thursday, chances were high that FIIs would have started taking money off emerging markets, including from India, which are considered risky investments by global investors.

These expectations seem to be filtering through into the bond markets as well.

For this, Rajan said, “we need the understanding and cooperation of business, not impatience and pressure”. YES Bank Chief Economist Shubhada Rao said all macroeconomic parameters are favourable for a lower rate. Yield on the 10-year benchmark 7.72%, 2025 bond ended at a more-than three-and-a-half month low of 7.6971%.