America
RBI on wait-and-watch mode on interest rates cut: Rajan
By
Arun KumarWashington, Aug 30
Reserve Bank of India (RBI)
governor Raghuram Rajan has said the RBI was watching economic data to
see whether it can reduce interest rates for the fourth time in recent
months.
"Monetary policy has been accommodative. We've cut
interest rates three times and we're still on an accommodative setting,"
he told the Wall Street Journal on Saturday.
"You know, like
other central banks, we are in a wait-and-watch mode," he said in an
interview on the sidelines of the Federal Reserve Bank of Kansas City's
annual economic symposium at Jackson Hole, Wyoming.
"And as the incoming data are analysed, we're looking to see how much monetary room there is for more accommodation," he said.
Asked
if the coming down of inflation puts the RBI in a position to ease
monetary policy further, Rajan said: "No, you know, capital is attracted
to strong economies.
"What we've seen in India is that for the most part we have been attracting capital.
"Now,
emerging markets have suffered a loss of capital, outflows, in the last
few months. We've had some, nothing too particularly dramatic," he
said.
"It's been a little out from the equity markets. The debt flows have stayed pretty much in."
Asked
what will drive his decision, Rajan said: "I think the growth feeds in,
to the extent that it affects our inflation outlook.
"And if we
feel, for example, that global growth is very weak and commodity prices
are going to remain low for a long time, that feeds into our inflation
outlook also.
"We're on a phase of accommodation. We're still in
that phase. We're looking at the data to see what more room we have,"
Rajan added.
Asked how the uncertainty about the potential for an
interest-rate increase by the US Federal Reserve was affecting India,
he suggested they should do it once global financial markets settle.
It would be counterproductive if the Federal Reserve did it at a time when there was a lot of market volatility, he said.
"That's been my view for some time, that one has to see what's happening elsewhere also," Rajan told the Journal.
"And this would certainly add volatility. It's volatility we all have to experience and overcome.
"But
if it adds to already a high level of volatility, that will not be
productive. But if it comes at a time when volatility is relatively low,
I think we all know that it has to happen at some point," he said.
Addressing
developments in China, Rajan said he was caught by surprise like many
other central bankers by China's decision to devalue its currency.
"The
Chinese authorities ... say that this is a way to get more market
forces to play, something they've been saying for a long time," he said.
"And
it is also true that the renminbi had appreciated quite a bit, as it
tracked the dollar, against many other currencies in the world," Rajan
said.
"So it's hard to argue that it was an unwarranted move from that perspective.
"But it did certainly catch markets and us by surprise."
(Arun Kumar can be contacted at [email protected])