RBI chief says policy rate is appropriately set

MUMBAI Wed Feb 26, 2014 6:40pm IST

Reserve Bank of India (RBI) Governor Raghuram Rajan speaks during a news conference after the mid-quarter monetary policy review at the RBI headquarters in Mumbai December 18, 2013. REUTERS/Danish Siddiqui/files

Reserve Bank of India (RBI) Governor Raghuram Rajan speaks during a news conference after the mid-quarter monetary policy review at the RBI headquarters in Mumbai December 18, 2013.

Credit: Reuters/Danish Siddiqui/files

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MUMBAI (Reuters) - India's policy interest rate is appropriately set, said RBI Governor Raghuram Rajan, who has raised rates three times by a combined 75 basis points since September despite economic growth at a decade low.

"Rather than administer shock therapy to a weak economy, the RBI prefers to disinflate over time rather than abruptly, while being prepared to do what is necessary if the economy deviates from the projected inflation path," Rajan said in a speech on Wednesday.

Rajan warned against waiting to act until inflation expectations become entrenched, but also said the Reserve Bank of India would overlook temporary spikes in inflation.

"In other words, the monetary policy committee will not put on blinkers and see just the inflation number," he said.

(Reporting by Suvashree Dey Choudhury and Swati Bhat; Editing by Tony Munroe)

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