Raghuram Rajan Ended the Strong Demand for a Rate Cut
August 25, 2015: As Rupee deteriorates to more than a percentage point, and stocks are falling again and again, Raghuram Rajan ended the strong demand for a rate cut.He said that India is in better shape than most, and he would not commit the mistakes like others central banks did to help the markets.
Investors were looking for some comfort from the RBI Governer. Rajan raised the point that taming inflation is essential for long-term growth to sustain instead of feeding the market with boosters.
"It is not the central bank role to raise sentiments, to give boosters to the stock market so that it can soar for a while, and collapse when reality hits,''he said.
Rajan is awakening the country about financial imbalance because of easy monetary policies by central banks in the developed market.The RBI Chief is working to make a better banking system that can support growth in the long term.
"Many of you are following the markets, worried by the market volatility," he said. "While I don't want to give opinion on the future direction of the markets, I will say that relative to other countries, India is in a good position with strengthening growth, low current account deficit, a narrowing fiscal deficit, moderating inflation, low short-term foreign currency liabilities, and sizeable exchange reserves relative to input liabilities."
India's current account deficit, which peaked at 4.7% of GDP in FY13, narrowed to 1.3% of GDP in FY15. Inflation as measured by the CPI, which was running at an average of over 9%, has slowed to 3.8% in July. Forex reserves are at a record high of $354.4 billion. ", he said.
He added that RBI will be working on smoothening the volatility in the market.Rajan believes that once market volatility settles down, India should emerge as the investment destination once again.