RBI not done with rate cut, still in accommodative mode: Rajan

  • Agencies, Washington
  • Updated: Aug 29, 2015 18:26 IST

Hinting at the fourth interest rate cut this year, Reserve Bank of India governor Raghuram Rajan has said he is not done with lowering rates and the central problem for the entire world remains slowing economic growth.

Rajan, participating in the elite Jackson Hole economic symposium of the Kansas City Federal Reserve, said on Friday the RBI had reached an agreement with the government on a new rate-setting panel, the Monetary Policy Committee, which would be announced soon.

The RBI left interest rates unchanged at its last policy review on August 4, having already cut them by 75 basis points this year as a slump in global commodity prices brought inflation under control. By holding rates steady, Rajan went against the majority on an advisory panel, who had recommended a reduction.

Rajan said on Friday the central bank was still in "accommodative mode" and would take a decision as per the data on inflation and other macroeconomic factors.

"We also have inflation which other people do not have. We have cut the interest rate thrice so far this year and we are still in accommodative mode. We will have a look at data as it comes in and take a view accordingly," he said.

"We have not said we are finished (on cutting rates) and we will take a view as the data allows us to do," Rajan told CNBC in an interview on the sidelines of the Jackson Hole summit.

Interestingly, it is the same summit where Rajan had once famously presented a paper that talked about an imminent global financial crisis, which eventually hit the world markets in 2007-08. Rajan was the IMF's chief economist when he made that famous prediction.

On China, Rajan said India was a big trading partner, but still the impact may not be as big as on some other countries from any slowdown in the Chinese economy.

"If in fact there is a greater Chinese slowdown than is anticipated, it won't affect us as much as other countries around the world... Of course, everybody would like stronger Chinese growth, but to some extent we are among the least affected," he added.

Rajan also advised the US Federal Reserve against raising rates when the world economy was in turmoil.

"My position over time has been don't do it when the world is in turmoil... It is a long anticipated event, it has to happen sometime -- everybody knows it has to happen -- but pick your time," he said.

Separately, Rajan said in an interview to Bloomberg TV that RBI has reached an agreement with the government on the new monetary policy committee.

He said the panel would be different from what was proposed in a draft earlier last month, wherein the government was to appoint the majority of the members.

"There is an agreement with the government, which is not that plan," Rajan said without divulging further details.

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