Rajan says government can weigh in on inflation

MUMBAI Wed Aug 6, 2014 7:32pm IST

The Reserve Bank of India (RBI) Governor Raghuram Rajan speaks during a news conference after the bi-monthly monetary policy review in Mumbai August 5, 2014. REUTERS/Danish Siddiqui

The Reserve Bank of India (RBI) Governor Raghuram Rajan speaks during a news conference after the bi-monthly monetary policy review in Mumbai August 5, 2014.

Credit: Reuters/Danish Siddiqui

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MUMBAI (Reuters) - Reserve Bank of India governor Raghuram Rajan on Wednesday called the central bank's consumer price index goal of 6 percent by January 2016 "reasonable", but said the government would ultimately weigh in on the ultimate inflation goal.

The reference to the government comes after Rajan had reiterated the RBI's goal of bringing down retail inflation to 8 percent by January 2015 and to 6 percent a year later, which analysts said could reduce prospects of near-term rate cuts.

Rajan, in an interview with TV channel ET Now, also denied inflation was the RBI's sole focus, noting the 6 percent inflation target was achievable without a "substantial sacrifice" on economic growth.

"Let's get it down to 6 (percent). That's a reasonable level of inflation," Rajan said.

"Then you know, we can have a public debate, the government is going to weigh in on that, what the ultimate inflation goal might be."

Although the RBI has referred to consumer inflation targets in previous public comments, the government of Prime Minister Narendra Modi, elected in May, has yet to take a stand on the matter.

The RBI has wide latitude in setting monetary policy, but it is not statutorily independent from the government.

Rajan also called for improving corporate governance at state-run lenders and said boards as well as incentive structures for CEOs needed to be improved.

"We have to draw in people from the private sector who want to give back themselves, and in that way you will get talent into these public sector enterprises," he said.

The comments come after police arrested the chairman of mid-sized state-run lender Syndicate Bank Ltd on Saturday over allegations of taking bribes to grant loan extensions to a company.

(Editing by Rafael Nam and Ron Popeski)

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