Raghuram Rajan says RBI focused on controlling inflation

The Reserve Bank of India (RBI) governor, Raghuram Rajan said it was focused on controlling inflation. Addressing bankers at the Bancon 2013 conference hosted by the Indian Banks’ Association in Mumbai, he said it affects all segments of the society, particularly the poorer.

He said that inflation was creating disjuncture between the investors, manufacturers, producers on one side with consumers and savers on the other. “The saver sees too low an interest rate because inflation is very high and that’s why we are seeing savings migrating towards gold,” said Rajan adding that the producers on the other hand were complaining about high interest rates.

Latest data on inflation were worrisome and led to expectations of a policy rate hike by RBI sooner than later. The Consumer Price Index or retail inflation crossed 10% mark and the Wholesale Price Index came it at 7%, higher than market expectations. Both were mainly driven by food inflation.

However, Rajan said that no single data point or number would determine the central bank’s next move. “The weak state of the economy, as well as the good kharif and rabi harvest, will generate disinflationary forces that will help, and we await the data to see how these forces are playing out,” he said.

He said that the central bank’s efforts would show over a medium term, about 6-12 months down the line.

On the issue of rising number of debt recasts, Rajan said that dressing up a loan and showing it as restructured and not provisioning for it when it stops paying is an issue. “Anything that postpones a problem rather than recognising it is something that should be avoided,” he said.
Rajan said it was important to distinguish between restructuring and ever-greening.