‘In his maiden monetary policy, Reserve Bank of India (RBI) Governor Raghuram Rajan surprised markets, which were in an euphoric mood on Thursday after the U.S Federal Reserve postponed plans to cut the asset-purchase programme, by raising interest rates for the first time in nearly two years to ward off rising inflation. The RBI, however, scaled back some of the emergency measures put in place to support the struggling rupee, which would bring down the cost of funds for banks
In his post-policy media briefing on Friday, Rajan set the tone by saying “the postponement of tapering is only that, a postponement. We must use this time to put our house in order to create a bullet-proof national balance sheet” – a comment that drew applause from some quarters. “Rajan has established his credentials as a responsible central banker… who is not a cavalier cheerleader for growth,” said Abheek Barua, chief economist, HDFC Bank. The RBI increased the policy repo rate by 25 basis points to 7.50%, defying widespread forecasts that he would leave the rate on hold to bolster a sluggish economy. Rajan said that domestic drivers of the rupee now take precedence: “The focus has turned to internal determinants of the value of the rupee, primarily the fiscal deficit and domestic inflation”.’ ( Excerpt from : ‘Rajan skips the Fed party’, Business World dt Sept 20, 2013)
Yes, this is what I wanted. Let us protect our national interest alone, just like the U.S protects its interest alone. India’s new Reserve Bank of India (RBI) Governor Raghuram Rajan wants to compress the ‘entrenched’ inflation out of a moribund Indian economy. A surprise repo rate hike won’t win Raghuram Rajan many friends. But he has sensibly retreated from his predecessor D Subbarao’s foolish plan to shore up the falling Indian rupee.
In fact, when the U.S Federal Reserve chief Bernard Bernanke flooded the global markets with U.S. dollars over the last two years or so, he also raised the inflation index of the emerging markets in the process. What say ?