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India’s central bank independently decides policy, says Raghuram Rajan


I determine the monetary policy. I say what it is. Ultimately the interest rate that is set, is set by me :Raghuram Rajan, RBI Governor. - Bloomberg file picture

Mumbai: India's monetary policy decisions, including setting the benchmark interest rate, are taken by the central bank independently, said Governor Raghuram Rajan.

"We control, of course, the monetary policy," Rajan said in reply to a question in St. Gallen, Switzerland on Friday. "I determine the monetary policy. I say what it is. Ultimately the interest rate that is set, is set by me."

The comments come as most opinion polls predict Narendra Modi's opposition Bharatiya Janata Party will win most of the 543 seats up for grabs in the Indian elections ending May 16, while falling short of a majority. Rajan's job will be safe under a BJP-led government, party treasurer Piyush Goyal said in an April 27 interview.

Rajan has raised the benchmark rate by 75 basis points to eight per cent since taking charge of the Reserve Bank of India in September and said controlling inflation is crucial to reviving growth from a decade low. Price pressures and slowing economic expansion have eroded the popularity of Prime Minister Manmohan Singh's Congress party.

The rupee rose 0.1 per cent to 60.025 against the dollar in Mumbai yesterday, while the benchmark S&P BSE Sensex climbed 2.9 per cent. The yield on the 10-year government bond maturing November 2023 fell one basis point to 8.75 per cent.

Asia's third-largest economy probably expanded 4.9 per cent in the year ended March 31, near the previous year's 4.5 per cent, which was the slowest since 2003, according to official estimates. The budget deficit narrowed to 4.6 per cent from 4.9 per cent in the previous 12 months.

Inflation issue
Any administration that takes power must respect Rajan's appointment as central bank governor, Finance Minister Palaniappan Chidambaram said in a May 3 interview in Astana, Kazakhstan. The RBI has been "pretty balanced" in maintaining price stability, he added.

Consumer prices rose 8.31 per cent in March from a year earlier, the fastest pace among the biggest emerging markets.

"We need to bring down inflation, without that we won't get sustainable growth," Rajan said on Friday. "I don't think there is an inflation-growth trade off, which some people talk about. Once we bring down inflation, for which we've indicated a path, then we can talk about the rest of what monetary policy can do." The Fed considers developments in emerging markets when formulating policy, Bernanke said in an April 15 speech in Mumbai.

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