Rate cut only when inflation is under control, says Rajan

  • HT Correspondent, Hindustan Times, Mumbai
  • Updated: Sep 16, 2014 01:54 IST

Reserve Bank of India (RBI) governor Raghuram Rajan on Monday said India’s economic growth was uneven and there was still some “way to go” before “we are out of the woods”, and that the central bank would cut interest rates only when inflation is under control.

He pointed out that “we are reaching close to the initiation of interest rate increases in US,” which could be a “blessing or turmoil as exchange rate moves.” The euro zone and Japan were, however, unlikely to do so for a longer time, he added
India’s WPI inflation eased to 3.74% in August, its lowest level in nearly five years. “Inflation has come down. This is consistent with our forecast… Bottomline is that macro indicators are improving, but still have some way to go, before we can declare that we are out of the woods,” he said.

Rajan was alluding to data released on Friday that showed industrial production rose 0.5% in July from 3.9% growth in June.

Consumer durables production is yet to see any revival, he said, adding that the pickup in auto sales over the last few months and strengthening of monsoon were positive signs for a recovery ahead.

Consumer price index-based or retail inflation eased to 7.8% in August. The RBI has targeted to bring it down to 8% by January 2015 and 6% by January 2016.

Pointing to the recent dip in oil prices, the central bank governor called upon the
government to deregulate diesel prices. “Lower oil prices mean lower current account deficit and lower inflation. We need to take this moment to eliminate diesel

Batting for greater autonomy to state-run lenders, Rajan said the government should look at them as “independent entities” that take their own commercial decisions. He also said that while it was fine for the government to involve banks to further social sector agenda, it should ensure that such schemes are financially feasible for the lenders.

Lauding the Prime Minister’s Jan Dhan Yojana as the biggest financial development, Rajan cautioned banks on the risks involved in just hunting for numbers. He also talked tough on public sector banks for outsourcing project evaluation instead of doing it in-house and called for better structuring and monitoring to identify and weed out “bad apples” and avoid past mistakes such as the Syndicate scam.

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