Hiking interest rates to tame inflation not ‘anti-national’: Raghuram Rajan

Former RBI governor Raghuram Rajan on Monday stated the central financial institution must increase rates of interest to tame inflation and the hikes needn’t be thought-about by politicians and bureaucrats as some “anti-national” exercise.


Photograph: Danish Siddiqui/Reuters

Known for his frank views, Rajan additionally stated it was vital to keep in mind that the “war against inflation” is rarely over.

“Inflation is up in India. At some point, the RBI will have to raise rates, like the rest of the world is doing,” he stated in a LinkedIn publish.


Costlier meals objects pushed the retail inflation to a 17-month excessive of 6.95 per cent in March, above the higher tolerance degree of the RBI, whereas the wholesale price-based inflation rose to a four-month peak of 14.55 per cent, primarily as a consequence of hardening of crude oil and commodity costs.

“… politicians and bureaucrats will have to understand that the rise in policy rates is not some anti-national activity benefiting foreign investor, but is an investment in economic stability, whose greatest beneficiary is the Indian state,” he emphasised.

Rajan is at the moment a professor on the University of Chicago Booth School of Business.

Earlier this month, the Reserve Bank of India (RBI) saved borrowing prices unchanged at a file low for the eleventh time in a row in a bid to proceed supporting financial progress regardless of inflation edging increased.

While the RBI has raised the retail inflation projection for the present monetary yr to five.7 per cent from the sooner forecast of 4.5 per cent, the benchmark rate of interest was retained at 4 per cent.

Addressing criticism that increased charges held again the financial system throughout his time period, Rajan stated he turned RBI governor with a three-year time period in September 2013 when India had a full-blown forex disaster with the rupee in free fall.

“Inflation was at 9.5 per cent then, the RBI raised the repo price from 7.25 per cent in September 2013 to eight per cent to quell inflation.

“As inflation came down, we cut the repo rate by 150 basis points to 6.5 per cent,” he recalled.

The eminent economist stated: “We also signed on to an inflation targeting framework with the government.”

While noting that these actions not solely helped stabilise the financial system and the rupee, he stated between August 2013 and August 2016, “inflation came down from 9.5 per cent to 5.3 per cent.”

Of course, not all this was the RBI’s doing, however some clearly was, Rajan stated, including that it was not a flash within the pan.

“The RBI has since maintained low inflation and low interest rates through troubling times like the demonetization, the fall-off in growth, and the pandemic,” he argued.

Rajan stated at present, international reserves have climbed to over $600 billion, permitting the RBI to calm monetary markets at the same time as oil costs have climbed.

“Recall that the disaster in 1990-91, once we needed to strategy the IMF, was precipitated by increased oil costs.

“The RBI’s sound economic management has helped ensure this has not happened this time,” he famous.

While admitting that nobody is glad when rates of interest need to be raised, Rajan stated he nonetheless will get brickbats from politically-motivated critics who allege the RBI held again the financial system throughout his time period.

Noting that a few of his predecessors have been equally criticised, he asserted: “It is essential that the RBI does what it needs to, and the broader polity gives it the latitude to do so.”

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