RBI not done with interest rates cut: Raghuram Rajan

RBI not done with interest rates cut: Raghuram Rajan

RBI is still in an 'accommodative mode' and would take a decision as per the data on inflation and other macroeconomic factors, says Rajan

Source: PTI

Hinting at the fourth interest rate cut this year, RBI 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, who was participating in the elite Jackson Hole economic symposium of the Kansas City Federal Reserve in the US, also said Reserve bank of India (RBI) has reached an agreement with the government on a new rate-setting panel, the Monetary Policy Committee, which would be announced soon. Rajan, who has under pressure from the government and the industry to further cut rates, said that RBI is still in an "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. 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 in an interview on the sidelines of 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 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 some other countries from any slowdown in 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. He also advised the US Federal Reserve against raising the rates when the world economy is in a 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. Rajan also 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. A major controversy had broken out after a draft proposal suggested the government appointing a majority of the members on the panel to be chaired by RBI Governor, while a veto power earlier proposed to be vested with the Chairman was also sought to be withdrawn. Rajan, however, later said he was fine with the idea of veto power being dropped. Currently, RBI Governor has a technical advisory committee to advise on monetary policy, but he enjoys authority to accept or reject the panel's views. Rajan further said there is a "mood of optimism" in India's economy and it would be among the least-affected countries from problems in China. He also urged the Parliamentarians to resolve their differences and allow the proposed GST law to be implemented, saying it would one of the most important changes in India. He also termed the proposed bankruptcy code as an "extremely important" legislation. "If we can get a good bankruptcy code, we can start issuing long-term bonds, which is absolutely necessary to finance infrastructure, finance all the big things the government plans," Rajan said. Talking about global markets, the RBI Governor said prices are not correct in certain asset markets and they may correct. "Now, whether that happens smoothly or that happens in more volatile fashion, I think is anybody's guess," he said. In his famous prediction years ago from this Jackson Hole symposium, Rajan had warned that the little-understood financial products may trigger a global financial crisis.  

August 29, 2015 | 3:20pm IST.

The Dollar Business Bureau - Aug 29, 2015 12:00 IST