RBI governor Rajan meets PM Modi ahead of monetary policy review

Reserve Bank of India (RBI) governor Raghuram Rajan called on Prime Minister Narendra Modi on Sunday ahead of the monetary policy review on Tuesday. According to an official statement, Rajan's visit was described as "a courtesy call".

There has been speculation that the new government may replace Rajan, who is an appointee of the erstwhile United Progressive Alliance government. "The government can fire me, but the government doesn't set the monetary policy," he was quoted as saying earlier this month highlighting RBI's nominal independence.

At another conference in Tokyo on Friday, he denied any discord with the government. There is "often a tendency to try and find a wedge between the two and widen the wedge", he said, according to media reports.

Clash
RBI will hold its first monetary policy-setting meeting this week amid speculation its hawkish stance could bring it into conflict with Modi's pro-growth policies. Analysts say RBI's strong anti-inflation policies may clash with Modi's aim of reviving the econ-omy, which grew by a mere 4.7 per cent last fiscal-the lowest level in nearly a decade and half the rate seen during the coun-try's boom years.

Rajan had kept the policy rate unchanged at eight per cent in its April 1 review as inflation, espe-cially of food items, neared more than eight per cent. Food infla-tion in April stood at 9.66 per cent and retail inflation 8.59 per cent. Rajan has hiked interest rates three times since taking over the helm.

Rajan's policies have been widely lauded for helping to reduce the current account deficit and restoing the rupee's stability. But at the same time, it has disap-pointed business leaders, who have called for lower borrowing costs to spur growth-a view analysts say could find sympa-thy with Modi's government.

India Inc and several econo-mists feel that rising inflation is due to supply-side bottlenecks and the monetary policy is not the right tool to bring down prices. Econo-mists widely expect RBI to keep its repo rate on hold at eight per cent, but say there is no chance it will lower the rate.

Courtesy: Mail Today