Raghuram Rajan comfortable with current policy rate

MUMBAI: Reserve Bank Governor Raghuram Rajan today said the policy rate is "appropriately set" at present, an assertion that comes amid criticism from certain quarters that it is currently too high.

"As of now, we believe the rate is appropriately set," Rajan said in a speech here.

Addressing concerns of those favouring a more hawkish stance by the RBI given the risks on the inflation front, Rajan said an emerging economy like India cannot afford such an action.

"If we do raise policy rates substantially, banks will also have to raise rates to match us. While this may lead to a collapse in demand and bring inflation down quickly, it will cause significant damage to the economy," he said.

Drawing a comparison between India and the US, a developed economy that saw then Fed chief Paul Volcker targeting inflation by continuously raising rates, Rajan said, "A developing country is not in the same resilient position as the US.

"Rather than administer shock therapy to a weak economy, the RBI prefers to dis-inflate over time," the Governor maintained.

Rajan, who took charge in September, has raised its key rate three times to contain inflation.

The recent moderation in inflation has led to expectations the RBI will pause the rate increases at its next monetary policy statement due on April 1.