India’s outgoing central bank governor Raghuram Rajan urged his successor yesterday to “stay the course” on pushing down inflation, in his first comments since he announced he was stepping down.
The popular Reserve Bank of India chief said in a statement released on Saturday he would be returning to academia when his term as RBI governor finishes in September, ending months of intense speculation over his future. Rajan, who famously predicted the 2008 global financial crisis, has been widely credited with bringing stability to India’s economy since taking over the reins of the RBI in September 2013.
He has brought inflation down from double-digit levels to 5.8% currently, and yesterday urged the RBI and India’s government to continue to focus on keeping it under control. “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,” Rajan said during a speech in Mumbai. “The government has taken the momentous step of both setting a CPI-based inflation objective for the RBI as well as a framework for setting up an independent monetary policy committee.
“In the days ahead a new governor as well as the members of the committee will be picked. I am sure they will internalise the frameworks and institutions that have been set up, and should produce a low inflation future for India,” he added.
Rajan, 53, has made controlling inflation a priority during his tenure and clashed with Prime Minister Narendra Modi’s Hindu nationalist government over how quickly the central bank should cut rates.
Rajan slashed interest rates over the past 18 months to their lowest level since early 2011 – but the ruling Bharatiya Janata Party wanted deeper cuts, saying these would boost growth further.
“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,” Rajan said, according to the speech e-mailed to journalists.
The former IMF chief economist added that the rewards of low inflation were many.
“The poor will not suffer disproportionately due to bouts of sharp inflation, and the middle class will not see its savings eroded. All this awaits us as we stay the course,” he added. Rajan enjoys a mass appeal not normally associated with a banker, and has been dubbed “Rock star Rajan” and India’s “James Bond”.
An online petition for him to stay on for a second term had tens of thousands of signatures.
Investors had been anxious about how the Bombay Stock Exchange would react to Rajan’s announcement but it finished up 0.91% yesterday – the first day of trading since he said he was stepping down.