New Delhi: Central bank Governor Raghuram Rajan’s ultimate legacy for India’s economy will be decided years after he leaves office.
As he prepares to exit on Sept. 4, he’ll turn over control of monetary policy to his successor and a new rate-setting panel. That six-member committee is one of the most significant steps remaining in the biggest overhaul of India’s central bank in its eight-decade history, a process initiated by Rajan when he took charge three years ago.
His lasting impact now hinges in part on whether the body will establish its independence and keep India’s inflation rate between 2 percent and 6 percent over the long haul. While Rajan managed to cement his inflation targeting framework into law, Prime Minister Narendra Modi faces calls from within his own party to stimulate growth ahead of key state elections leading up to the next national vote in 2019.
“The monetary policy committee needs to be perceived as neutral,” said Shubhada Rao, an economist with Yes Bank Ltd. in Mumbai. “My sense is the chosen path will be one of credibility and continuity.”
In Rajan’s final review on Tuesday, he held interest rates at a five-year low as consumer price inflation crept close to the upper band of his target. He also announced the central bank’s three members of a proposed rate-setting panel, and said it won’t be long before the government selects the rest.
“We should expect them to take an independent decision, and I’m sure they will,” Rajan told reporters in Mumbai.
When Rajan took office in September 2013, he moved quickly to bolster the rupee as the U.S. Federal Reserve’s move to end its stimulus roiled global financial markets. Later he set out to accomplish three main goals: keep inflation low and stable, spur competition at state-run banks and deepen India’s financial markets.
(Sourced from agencies, Feature image courtesy:oneindia.com)
