At a Town Hall meeting with school students here this morning, Rajan when asked whether he would be more innovative in combating inflation or will stick to tools adopted by his predecessors of raising interest rates, said he does not have any wonder tool to fight the price rise menace.
"Do we have any new or wonderful tool (for inflation) or can we invent one? I think problems emerge when central bankers get overly innovative in the tools that they will use.
"One reason for high inflation is supply-side mismatches and other is too much demand. Now, there are many ways of constraining demand. Less spending by the government is a way of constraining demand. Another way is to make demand match supply, which is to raise interest rates," Rajan said.
He, however, was quick to added that to accelerate growth, the central bank is taking newer steps.
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He further said as far as the current situation in the economy goes we have both supply-side problem -- large projects have been stalled, and also on the food side there are discrepancies in distribution.
When asked what the central bank is trying to achieve with the recent hikes in key lending rates, Rajan said it is to keep cost of money higher and manage inflation expectations.