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‘RBI Should Continue With Rajan's Policies On Inflation’

Investor Service Moody's talk about credibility and effectiveness of Rajan’s monetary policy

Policy Pulse
Publish Date: Aug 15 2016 3:17PM | Updated Date: Aug 15 2016 3:17PM

‘RBI Should Continue With Rajan's Policies On Inflation’

 Governor of Reserve Bank of India Raghuram Rajan's policy on inflation has showed better results. RBI should continue with similar policies and communication going forward said the investor service, Moody's.


Marie Diron, Moody's Investors Service Senior VP Sovereign Risk Group said that credibility and effectiveness wise the monetary policy of Rajan left a good impact on India's sovereign ratings. Moody's has a 'Baa3' rating on India, with a positive outlook. 


In last two years, India's inflation has fallen to more moderate levels, likely because of more credible monetary policy. We expect that RBI continue with similar policies and communication, showing commitment to achieve its inflation target, said Diron. 


A monetary policy with tight leash on inflation is important especially in the country like India, where the past inflation has risen to very high levels. The inflation also negatively affecting growth and investment prospects, she added.


Rajan, who demits office on Sept 4, has been pilloried by critics for keeping interest rates high. He has also been accused of stifling growth. Rajan had challenged critics showed how inflation is very low before accusing him of being behind the curve in his focus on containing price rise than on growth. 


Consumer price index or retail inflation rose by 6.01 per cent in June, the fastest pace in 23 months and it is expected that the implementation of the new Goods and Services Tax (GST) may push up inflation further. 


Diron also said that monetary policy enhances transparency and is suited for India's specific economic and institutional structures. "In India, inflation targeting also contributed to enhancing the transparency of monetary policy, two important elements to foster its credibility and effectiveness," she said.