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HindustanTimes Tue,23 Sep 2014

We are neither hawks, nor doves, we are owls: RBI

PTI  Mumbai, January 29, 2014
First Published: 22:50 IST(29/1/2014) | Last Updated: 22:55 IST(29/1/2014)

A day after he surprised the markets with a 0.25% hike in key rates, Reserve Bank Governor Raghuram Rajan, on Wednesday defended the move citing public interest and took a dig at analysts and economists for labelling him a hawkish monetarist.

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"We can't talk only to analysts who are steeped in inflation targeting and speak their language. We also have a broader audience that we have to take along," he said at the customary post-policy analysts conference call today when asked about the dissonance in the December statement and the current rate hikes.

However, he was quick to add that RBI is not blind to the issues arising from low growth, saying the Central bank is concerned about growth as well.

He further said, "We have to operate in such a way that people understand that inflation is the important target but at the same time inflation control is in the wider interest of the population".

On analysts terming the move as dovish or hawkish, Rajan said, "On hawk with dove or dove with hawk....the whole point is that we are trying to craft a path in an environment where economy is relatively weak and we have to be careful that the broader people--I am not talking about the analysts-- understand what we are trying to do".

Yesterday, to answer questions from reporters, he took to ornithology to explain the policy stance saying, "we are neither hawks, nor doves. We are actually owls."  

He was answering a question on the contradiction in the RBI's third quarter monetary policy, which is hawkish in its stance as it unexpectedly raised rates, but dovish in its guidance because of indications of a pause.

"An owl is traditionally a symbol of wisdom. So we are neither doves (nor hawks)...but owls and we are vigilant when others are resting," deputy governor Urjit Patel had said.

"The broad point is that don't try and put us into buckets. We are doing what is necessary for the economy," Rajan had said.

Explaining the rationale behind the hike, Rajan said, "We are in an environment where we have got high inflation with low growth.

"So navigating in these circumstances has to be done with more care than in a situation where you have got high inflation and high growth and you know what needs to be done and there is complete consensus on that."  

Seeking support from politicians, Rajan said, "Ultimately, inflation is both a monetary and a political issue and we need the political establishment to understand the importance; and I am confident that it will and it is".

Stating that the public at large knows the purpose of RBI, he said the central bank was trying to take the public along in its fight against inflation and added that he feels confident that RBI is succeeding in this effort.

Admitting that there have been some reduction in core inflation, Rajan said the pace of reduction was not enough to warrant a rate cut as indicated in the December guidance.

"Of course, there has been some reduction (in core inflation) but we would have liked to see a stronger reduction there. Given that, we thought that a certain rate increase would be appropriate", Rajan said.

The RBI Governor further said the reason the apex bank talked about core CPI for sometime is to demonstrate that it's not just food inflation that is worrisome but there are other aspects of inflation like the price of services, education, healthcare and housing, which are rising steadily for the past few years.

"Prices are doing what they are suppose to do and to give up the fight on inflation saying food is beyond our control, I think it is overstating or understating the part of central bank," Rajan said.

Deputy governor Urjit Patel headed committee had last week set an objective of below 8 per cent CPI inflation by January 2015 and below 6 per cent CPI inflation by January 2016.

On feasibility of the CPI target of 8%, Patel said: "We have a projection of around 8 per cent with a band of 7.5-8.5 per cent. So, there is a fair bit of uncertainty, but we feel the central estimate is likely to be achievable, all things being equal, with the policy actions that have been taken in last few months and not just yesterday.

 


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