Keep demand under control: Raghuram Rajan

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Mumbai, Jun 12 : Even as he favoured some of the steps taken by the Reserve Bank of India (RBI) in the recent past aimed at controlling inflation, former chief economist of the International Monetary Fund (IMF) Raghuram G Rajan has suggested bringing demand under control.

Talking to FE, Rajan said, “I think the RBI is following the right path on interest rates. But they (RBI) should be watchful to ensure that demand doesn’t get out of control”. In fact, RBI should be more vigilant towards this direction, added Rajan, who teaches finance at University of Chicago in the US.

Author of the Raghuram Rajan committee report on financial sector reforms, Rajan was in Mumbai to elicit the opinion of bankers on his report which has been submitted to the Planning Commission and will be given to the Prime Minister later this year. In its bid to curb inflation, which was hovering at more than 8% these days, the RBI first raised the cash reserve ratio by 75 basis points nearly a month ago and then it raised therepo rate, the rate at which banks borrow short-term funds from the central bank, to 8% on Wednesday.

Asked to comment on his report, the draft of which runs into 250 pages, Rajan said, “My report takes care of both the common man as well as the corporate sector. While it throws light on those 50% of the country’s population that were yet to be brought to the mainstream financial services of the country, it also talks about India Inc and how can it take the country ahead by the launch of new products, going for deeper markets and finally by raising money through equities and bonds.”