 "Rajan believes 'glide path' towards lower inflation fits India well")
Reserve Bank of India (RBI) Governor Raghuram Rajan believes ‘an Urjit Patel glide path’ fits the country well for ensuring moderate growth even while the economy disinflates.
“A ‘Volker’-like disinflation was never on the cards in India, but an Urjit Patel glide path fits us very well, ensuring moderate growth even while we disinflate. Going forward, we will discuss with the government an appropriate timeline within which the economy should move to the centre of the medium-term inflation band of 2-6%,” said Rajan at the Bharat Ram Memorial Lecture in New Delhi.
A committee headed by RBI Deputy Governor Urjit Patel had earlier recommended a ‘glide path’ to disinflation. RBI will be looking to reduce headline retail inflation to 6% by March 2015. The core recommendation of the central bank panel was to ultimately bring the retail inflation rate down to 4% (plus or minus 2%).
In its fifth bi-monthly monetary policy review earlier this month, RBI had kept the repo rate unchanged at 8%, while Rajan had highlighted that risks to the January 2016 target of 6% retail inflation appeared evenly balanced under the current policy stance.
Rajan reiterated that the central bank’s focus on primarily keeping inflation low and stable would ensure the best conditions for growth. “In reacting to developments, however, the central bank has to recognise that emerging markets are not as resilient as industrial economies. So, the path of disinflation cannot be as steep as in an industrial economy, because an emerging market is more fragile, and people’s buffers and safety nets are thinner,” said Rajan.
November data for the Consumer Price Index (CPI)-based inflation are expected later on Friday; most expect it to ease below 5%. The inflation rate had risen to 5.52% the previous month.
“Domestic demand-led growth is notoriously difficult to manage, and typically leads to excess. Therefore, we need to strengthen domestic macroeconomic institutions, so that we can foster sustainable and stable growth. At the same time, we cannot let foreign markets shrink further, and we have to take up the fight for an open global system,” Rajan said.