Indian central bank chief hits back at detractors

By Suvashree Choudhury and Rafael Nam

MUMBAI (Reuters) – India’s central bank governor Raghuram Rajan on Monday hit back at critics and defended his record in fighting inflation and driving policy reform, in his first public appearance since announcing he will step down in September.

The comments specifically addressed critics of his policies during his nearly three-year tenure – from the adoption of consumer inflation as the main benchmark for the Reserve Bank of India (RBI) to his decision to keep rates higher than some members of the government and executives had called for.

He also called on the country to continue the reforms he has pushed for, including the creation of a monetary policy committee to set interest rates.

His comments, in a speech in Mumbai on Monday, come after the much admired former chief economist of the International Monetary Fund stunned the country on Saturday by announcing he would not pursue a second term after his tenure ends in September.

“There are many who believe we are totally misguided in our actions,” said Rajan, who went on to lay out his views on why detractors are wrong about the bank’s reform agenda.

“What is happening today is truly revolutionary,” he said. “We are abandoning the ways of the past that benefited the few at the expense of the many.”

Rajan’s abrupt decision to quit came as he increasingly felt he lacked support from his political bosses Finance Minister Arun Jaitley and Prime Minister Narendra Modi, friends and colleagues told Reuters.

CRITICS

Among the RBI governor’s critics were right-wing members of Modi’s Bharatiya Janata Party, including politician Subramanian Swamy who accused Rajan of an “apparently deliberate attempt … to wreck the Indian economy” by keeping rates too high.

Rajan has cut the main policy rate by 150 basis points since last year, but has faced calls for more substantial easing.

On Monday, Rajan said those who have called rates too high “cannot have it both ways, want lower inflation as well as lower policy rates.

“The RBI always sets the policy rate as low as it can, consistent with meeting its inflation objective,” he said, adding: “The RBI does not focus on inflation to the exclusion of growth.”

He also pointed to an uptick in consumer inflation – which hit a near two-year high of 5.76 percent in May, the upper end of the central bank’s inflation target of 2 percent to 6 percent – as proof the RBI has “not been overly hawkish” and was “wise to disregard advice in the past to cut more deeply.”

Rajan also strongly defended the reforms he has championed, including the upcoming introduction of a monetary policy panel to set interest rates, noting they were key to ensure low inflation, even as he noted “adjustment is difficult and painful in the short run.”

“The wrong thing to do at such times is to change course. As soon as economic policy becomes painful, clever economists always suggest new unorthodox painless pathways,” he said.

“We must not get diverted as we build the institutions necessary to secure a low inflation future, especially because we seem to be making headway.”

For copy of speech see http://bit.ly/28J0zt6

(Editing by Clarence Fernandez; Editing by Janet Lawrence)