Raising interest rates to curb inflation should not be seen as an “anti-national” activity by politicians and bureaucrats, former RBI Governor Raghuram Rajan said on Monday, stressing the importance of raising interest rates in line with the rest of the world.
“Inflation in India is rising. At some point, the RBI will have to raise interest rates like the rest of the world does, ”he said in a post on LinkedIn.
In March, retail inflation peaked at a 17-month high of 6.95%, above the RBI upper tolerance level, while wholesale-based inflation rose to a four-month high of 14.55%, mainly due to rising crude oil prices. and raw materials. “… politicians and bureaucrats will need to understand that raising interest rates is not some anti-national activity that would benefit foreign investors, but an investment in economic stability whose greatest benefit is the Indian state,” he wrote.
Earlier this month, the IRB Monetary Policy Committee kept its borrowing costs unchanged at a record low for the 11th time in a row, in a bid to continue to support economic growth despite rising inflation. While the RBI raised its retail inflation projection for the current financial year to 5.7 percent from the previous forecast of 4.5 percent, the reference interest rate remained at 4 percent.
Criticizing that higher interest rates were holding back the economy during his tenure, Rajan wrote that he became RBI governor with a 3-year term in September 2013, when India had a complete currency crisis with a rupee in free fall. “Inflation was 9.5 percent at the time, RBI raised the repo rate from 7.25 percent in September 2013 to 8 percent to ease inflation. When inflation fell, we lowered the repo interest rate by 150 basis points to 6.5 percent, “he wrote. “We have also signed a framework with the government to target inflation,” Rajan said. Although he noted that these measures did not only help stabilize the economy and the rupee, he said that between August 2013 and August 2016, “inflation fell from 9.5 percent to 5.3 percent”. “The RBI has since maintained low inflation and low interest rates in difficult times such as demonetization, declining growth and a pandemic,” he argued.
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