"Inflation needs innovative solutions. We need to move away from the older methods to curb inflation," he said.
He was delivering a speech on the current economic environment organised by industry body IMC at the University of Mumbai premises.
Wondering whether the "textbook prescriptions" are relevant today, he said those principles were laid down at a very different time, especially when markets were not as open as they are today.
Raghuram Rajan took charge as RBI Governor last week. His predecessor D Subbarao had ushered in a series of rate hikes to tame the runaway inflation after the massive stimulus unveiled following the 2008 global credit crisis. Subbarao faced criticism from industry, amongst others, for the hikes.
The RBI yesterday notified a nine-member committee to have a fresh look at the monetary policy-making.
Speaking on the troubles over the rupee, which has plunged close to a quarter of its value against dollar since April, Kamath said the currency is undervalued at present, but did not give an indicative number of the right level.
The rupee ended today at 63.48 versus dollar.
The top banker also made a case for a rethink on mandatory priority sector lending policy, saying there is a need to go beyond direct agriculture and lay focus on the rural sector, including value-added services and infrastructure creation.
Speaking of the recently visible greenshoots in economy, he said the 1.2-billion strong population and the rural demand is still around, making a case for not being too worried over growth prospects.
Kamath exuded confidence the government will rein in the fiscal deficit at 4.8 per cent of GDP for the current fiscal.