In a clear indication that he is in no hurry to cut interest rates, Reserve Bank of India Governor Raghuram Rajan on Monday said inflation is high and the best solution for the country is to bring it down.
Speaking at the annual FICCI-IBA banking conclave, Rajan said, “Inflation is high not only in food, but also in non-food items and the best solution for the country is to bring it down. Then I can cut interest rates.
“I have no desire to keep interest rates higher than they should be. I want to bring down interest rates when feasible and that would be when we have won the fight against inflation,” he said.
Rajan observed that inflation is coming down, consistent with RBI’s forecasts. In his third bi-monthly monetary policy statement in August, he said the central bank will continue to monitor inflation developments closely.
The RBI remains committed to the dis-inflationary path of taking retail inflation to 8 per cent by January 2015 and 6 per cent by January 2016. The Governor said there is no point in cutting interest rates to see inflation pick up again.
To persistent demand from the industry to cut rates, the Governor challenged them to bring down their prices.
“When you do that then we will do that, we have no problem. Clearly, you will have no consensus on this,” he said in a lighter vein.
Oil pricesPointing out that lower oil prices are helping oil importing countries such as India, Rajan said the government needs to seize the moment and eliminate diesel subsidies. This move could have a salubrious effect on the fiscal deficit (the gap between the revenue and expenditure of the government).
On growth, the Governor said: “A stable Government makes us stand out relative to emerging market peers…We are in the process of picking up growth, even if the journey is likely to be bumpy at times.”