Raghuram Rajan says rate hike in public interest

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Broad point is that don't try and put us into buckets. We are doing what is necessary, says Raghuram Rajan. Reuters Broad point is that don't try and put us into buckets. We are doing what is necessary, says Raghuram Rajan. Reuters
SummaryBroad point is that don't try and put us into buckets. We are doing what is necessary, says Raghuram Rajan.

Rajan said, "Ultimately, inflation is both a monetary and a political issue and we need the political establishment to understand the importance; and I am confident that it will and it is".

Stating that the public at large knows the purpose of RBI, he said the central bank was trying to take the public along in its fight against inflation and added that he feels confident that RBI is succeeding in this effort.

Admitting that there have been some reduction in core inflation, Rajan said the pace of reduction was not enough to warrant a rate cut as indicated in the December guidance.

"Of course, there has been some reduction (in core inflation) but we would have liked to see a stronger reduction there. Given that, we thought that a certain rate increase would be appropriate", Rajan said.

The RBI Governor further said the reason the apex bank talked about core CPI for sometime is to demonstrate that it's not just food inflation that is worrisome but there are other aspects of inflation like the price of services, education, healthcare and housing, which are rising steadily for the past few years.

"Prices are doing what they are suppose to do and to give up the fight on inflation saying food is beyond our control, I think it is overstating or understating the part of central bank," Rajan said.

Deputy governor Urjit Patel headed committee had last week set an objective of below 8 per cent CPI inflation by January 2015 and below 6 per cent CPI inflation by January 2016.

On feasibility of the CPI target of 8 per cent, Patel said: "We have a projection of around 8 per cent with a band of 7.5-8.5 per cent. So, there is a fair bit of uncertainty, but we feel the central estimate is likely to be achievable, all things being equal, with the policy actions that have been taken in last few months and not just yesterday.

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