Won't keep interest rates high longer than needed, says RBI Guv Raghuram Rajan

Aug 05 2014, 22:03 IST
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RBI kept its key policy repo rate unchanged on Tuesday as widely expected. Reuters RBI kept its key policy repo rate unchanged on Tuesday as widely expected. Reuters
SummaryThere will eventually be room to cut rates: Raghuram Rajan

Reserve Bank of India (RBI) Governor Raghuram Rajan today further cemented anti-inflationary stance saying price stability is the best insurance for high and sustainable growth, but also assured a low interest rate regime if all goes well on the macro, inflation and the external fronts.

"The Reserve Bank will not hold interest rates high any longer than is necessary, and if disinflation proceeds as warranted, there will eventually be room to cut rates," the Governor said in the customary post-policy meet. Raghuram Rajan Full Speech pdf

The Reserve Bank in the third bi-monthly review of the monetary policy left all the key policy rates unchanged citing inflationary pressure, but cut SLR by 0.50 per cent to 22 per cent which will release over Rs 40,000 crore liquidity into the system.

"There is a path we are trying to achieve, and we want to achieve that path (8 per cent CPI by next January and 6 per cent by January 2016). We are not against growth, but we do think that growth will be most benefited if we disinflate the economy," Rajan said, adding that both these targets look achievable.

"This is an anti-inflation fight, and let us win it because that will create the best conditions for sustainable growth," Rajan, who raised the key rates twice since assuming office last September, added.

Sounding confident of achieving the inflation targets, Rajan said: "I think the expectation that we will confront and deal with inflation is much stronger now than it was earlier."

The CPI inflation dropped to 7.31 per cent in June from 8.59 per cent in April.

Noting that foreign investors are worried over high inflation, he said one of the major concerns that investors have is whether RBI will take away the benefits of the Indian growth story from them by inflating economy and thereby depreciating the rupee.

"No, we have no intent of doing that. We want to bring inflation under control and more like the inflation in other countries so that the rupee is not seen on a continuously weakening path," Rajan said.

Stating that the country is no longer `a problem economy', Rajan said the economy has emerged from the perception of being in crisis as it has placed itself as a better place to remain invested.

"I keep telling the international fora that India is not a problem

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