People expect too much from RBI: Hansen

The Dollar Business Bureau

Urging India to remain on the reform path, Nobel laureate Lars Peter Hansen stated that the main focus of the Reserve Bank of India should be to manage inflation. Hansen, a renowned economist, further stated that the RBI should not be expected to fix macroeconomic matters.

People expect too much from the RBI, he said while adding that the government should take steps to encourage Foreign Direct Investments in various sectors and amend the restrictive labour laws.

The remarks came amidst RBI governor Raghuram Rajan’s decision to reject second term of his office. Reports claim that Rajan decided to give a thumbs down to the second term due to criticism from a group of the ruling party led by Subramanian Swamy, who sought removal of Rajan several times.

The wholesale inflation touched the skies for a third straight month in June, hitting 1.62% pricier on food and manufacturing goods after remaining negative for over a year due to weak demand.

The stability of the Wholesale Price Index was followed by an increase in consumer price inflation, which hit a 22-month high of 5.77% in June.

Rajan, in the policy review of June, left the interest rates unchanged due to increasing inflation pressure. However, he hinted that the reduction can be expected later this year if monsoons are good.

Praising the efforts of RBI to prepare balance sheets of public sector banks in a fair and transparent manner, Hansen stated that central banks, whether in India or the US, should not be expected to solve the macroeconomic matters.

Hansen was speaking at the Indian School of Business, Hyderabad. He hoped that UK doesn’t turn protectionist after Brexit and barriers in trade remain minimal so that it does not impact in adverse ways to the already fragile world economy.