Government must protect central bank's independence: Raghuram Rajan

KOLKATA: Outgoing Reserve Bank of India Governor Raghuram Rajan has said governments should ignore the high decibel noise against prudent monetary policies by vested interests in the interest of sustained economic growth.

"It is important that governments around the world look beyond sometimes uninformed and motivated public criticism and protect the independence of their central bank to act. That is essential for stable sustainable growth," he said at an event at RBI Tuesday.

Rajan said the criticism of high interest rates stalling investments in India are not backed by evidence and the markets and bankers have also come on board to clean up the system after initial hesitation.

"The RBI, of course, stands by its policies," he said at the conference of statisticians and economists from across the world celebrating the Statistics Day.

"The slowdown in credit growth has been largely because of stress in the public sector banks, stemming from past mistakes in lending. This will not be fixed just by a cut in policy rates," he argued.

Rajan also pointed to the high inflation which guided his policy stance. "With CPI inflation currently close to the upper bound of our inflation target, few could sensibly argue that we have not been adequately accommodative. Of course, our last policy statement indicated we expect it to come down to around 5 per cent by March 2017," he said.

Rajan has taken a jibe at people who argued that RBI killed demand and growth through high rates while India earned the fastest growing large economy tag recently.

"They argue that our policy has had little effect on curbing inflation, that disinflation has been a result of the fall in oil and other commodity prices," Rajan said. "For instance, even as the price of the Indian crude basket fell 72 per cent between August 2014 and January 2016, the pump price of petrol fell only 17 per cent. Therefore, while I do want to acknowledge the benign international price environment in bringing down inflation, it is not the entire story."

He said central banks do not determine policy on short-term basis, but it sometimes is the focal point for the media debate here.

The stock market, after reacting negatively initially early this year, started reacting positively to the public sector banks clean up act.