Mumbai, Aug 5 : Reserve Bank 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. 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 any more. I think there was a perception problem (last year), but I think today that perception also doesn’t exist,” Rajan said.
Noting that political stability is the best tool for macro stability, he said the formation of a stable government at the Centre has strengthened the country’s position amongst overseas investors. “Political stability to my mind is worth a tremendous amount as far as the external situation goes and that is big change,” the Governor said, and complemented the government’s resolve to keep a fiscal consolidation glide path.
When asked about the arrest of the state-owned Syndicate Bank Chairman S K Jain for allegedly taking bribes, Rajan warned against painting every state-run banker as corrupt and against a witch hunt which will bring credit market to a halt. However, he admitted that such instances speak volumes about the poor corporate governance at PSBs and underlined the need for improving transparency in sanction of loans.
He also said the RBI has initiated inspection of the book of accounts of Syndicate Bank. “There is an inspection under way of Syndicate Bank but I think one has to be very careful about extrapolating this issue to entire banking system without thinking further through. This episode does raise the troubling issue,” Rajan said.
“It is important for an enforcement agency to ensure full investigation is done. I think they are doing that…all the problem in the banking system is because of criminality rather than because of other factors. “I think a balance has to be maintained and we have to be also careful. While we do thorough investigation and culprits are brought to book, it does not become a witch-hunt which then stalls the entire credit process,” he said.