Raghuram Rajan promises to cut rate on good monsoon

Washington/Mumbai: RBI governor Raghuram Rajan has said that a good monsoon and the continuing drop in the inflation rate could see the Reserve Bank lower the interest rate further.

“We are looking for signs of a good monsoon. Unfortunately, India is still somewhat sensitive to monsoons, though people find it hard to see a link between monsoons and food prices. But there is potentially (a link), with this being the third bad monsoon in a row (if) that happens,” said Dr Rajan in an interview to US business daily Wall Street Journal.

The governor is accompanying finance minister Arun Jaitley to attend the International Monetary Fund and the World Bank meetings in Washington.
Regarding inflation, the RBI governor said that its downward trend “would create room (for further rate cuts).”.

Giving fulsome praise to the Narendra Modi government, Dr Rajan — who is being seen as the next finance minister of India — told the WSJ  that India has got it right when it comes to managing the macro-economic scenario even as several other economies, including emerging ones, were struggling amid overall tough global conditions.

He said India has narrowed its deficits to ensure greater flexibility to manage its economy through the turbulent global scenario. He also had words of praise for the US Federal chief Janet Yellen for paying more attention to emerging markets in her policy for the US markets.

“They certainly are paying more attention and talking about paying more attention, which I think is a very welcome step... I think that’s changed quite a bit under Yellen,” Dr Rajan said, adding it allows the emerging markets more room to address issues like currency volatility and declining commodity prices. The US Fed’s move to slow the pace of their rate hikes, the RBI governor said, has helped take a little bit of pressure off on others like sinking commodity prices hurting commodity-exporting countries and high US dollar debt loads affecting companies in some emerging markets.

Dr Rajan and other central banks from emerging countries had criticised the US Fed policies in the past for the adverse impact their quantitative easing moves have had on emerging markets, including on India and China.

In fact Dr Rajan has been criticising the rich countries for announcing their policies without thinking of the impact these have on developing economies. He has been calling for taking other central banks into confidence before taking decisions.

With the global growth slowing down because of slower growth in China and fiscal pain in oil producing countries, the US Fed Reserve had delayed the scheduled interest rate hike of one per cent — in four instalments in 2016.