RBI chief stresses his independence from government

ST GALLEN Switzerland/MUMBAI Fri May 9, 2014 10:12pm IST

Related Topics

ST GALLEN Switzerland/MUMBAI (Reuters) - The head of the Reserve Bank of India (RBI) said on Friday that he - and not the government - was responsible for setting monetary policy, asserting his independence in taking a hawkish stance on inflation amid an election hinging on how to revive economic growth.

India's five-week long election is set to conclude on Monday, with results due on Friday. The opposition Bharatiya Janata Party (BJP) and its allies are leading in the polls after campaigning on a promise of reviving an economy expanding at its slowest rate in a decade.

Should the BJP win, analysts say RBI Governor Raghuram Rajan could come under political pressure to retreat from his hawkish stance on inflation.

"The key question is what kind of equation do you have with the government? I determine monetary policy, I say what it is," Rajan said at a conference in St. Gallen in eastern Switzerland.

"The government can fire me, but the government does not set monetary policy."

The RBI's governor and his deputies are appointed by the government - but they generally enjoy latitude in policymaking. However, Rajan's focus on inflation has also not been popular with the ruling Congress party.

Finance Minister P. Chidambaram on Thursday reiterated his stance that monetary policy decisions must take into account both price stability and economic growth, although he called for any new government to respect Rajan's appointment to the central bank.

Rajan on Friday reiterated his stance that bringing down inflation was key to growth and that India could one day emulate more developed economies such as South Korea, Japan, or China.

"To get sustainable growth, we have to bring down inflation. Once we get inflation down, then we can talk about the rest," Rajan said.

"I'm confident we can get back to the 8, 9 or 10 percent growth even though we're currently slowing down," he added. "I think over the next few years, with a stable government and the right kind of actions, we can still have that."

Since Rajan took the helm of the RBI in September, it has raised interest rates three times for a total of three-quarters of a percentage point.

Meanwhile, a central bank panel in January recommended making managing inflation its main policy objective, with a goal to explicitly target consumer price inflation of 4 percent, with a 2 percent band on either side.

Data on Monday is expected to show April consumer inflation to edge higher to 8.48 percent from a year earlier.

(Editing by Rafael Nam and Hugh Lawson)

FILED UNDER:

Religion and Politics

REUTERS SHOWCASE

Fund Raising

Fund Raising

Flipkart raises $700 million in fresh funding.   Full Article 

Reforms Push

Reforms Push

Modi may order insurance, coal reforms if vote delayed - officials.  Full Article 

Reuters Exclusive

Reuters Exclusive

India looks to sway Americans with nuclear power insurance plan  Full Article 

To Boost Growth

To Boost Growth

Crank up public spending to revive growth - chief economic adviser.   Full Article 

Bold Steps

Bold Steps

SpiceJet rescue plan marks bold bet on Indian aviation recovery.   Full Article 

New Airline

New Airline

Tata, Singapore Air venture Vistara to take off on Jan 9.  Full Article 

Online Sales

Online Sales

Knock knock. Who's there? Amazon's best-selling holiday author.  Full Article 

Hacking Attack

Hacking Attack

N.Korea says did not hack Sony, wants joint probe with U.S.  Full Article 

Reuters Poll

Reuters Poll

BSE Sensex to hit 32,980 by December 2015  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage