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Hope India will continue to prioritise low inflation: Raghuram Rajan

Former RBI Governor Raghuram Rajan, whose tenure at the central bank ended this month, hopes the process of cleaning up banks in the country will be finished and government will continue to prioritise “low inflation”, even as he warned against low interest rates globally.

Raghuram Rajan-AV

Rajan, who stepped down on September 4 as India’s top central banker, said in an interview with the New York Times that he hoped the country would finish “the process of bank cleanup which is underway.”

He also noted that his tight monetary policy has helped in bringing India’s rate of inflation — currently about 6 per cent — down to the upper end of the government’s target range.

“I think we’ve done exactly what was needed,” he said adding the central bank should continue to prioritise low inflation.

A new warning also came from the central banker at a time when the world’s central banks appear to be at a loss about how to get global growth moving again. Rajan warned low interest rates globally could distort markets and would be difficult to abandon.

With countries around the world, including the United States and Europe, having kept interest rates low as a way to encourage growth, he said countries could become “trapped” by fear that when they eventually raised rates, they would see the growth slow down.

Low interest rates should not be a substitute for “other instruments of policy” and “various kinds of reforms” that are needed to encourage growth, Rajan said.

Rajan also disputed the view that his tight monetary policies had cost him the support of the government, and said his departure was based on his inability to reach an agreement with the government on serving longer but not serving another full three-year term.

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