Asserting that the Reserve Bank of India (RBI) is "anti-inflation", new Governor Raghuram Rajan today said partial easing of its recent liquidity tightening measures coupled with repo rate hike is supportive of economic growth, a remark that helped the markets trim losses.
"Of course, we are anti-inflation... of course, our intent is to signal a stance against inflation," Raghuram Rajan said at a press conference after announcing his first policy review as the RBI Governor.
The RBI wants to get inflation down to the stated 5 per cent-mark, Raghuram Rajan said without giving a deadline for the same.
Raghuram Rajan, a celebrated economist credited for predicting the 2008 global financial crisis, said the central bank is worried about the growth aspect as well, even though he today increased the repo rate by 25 basis points to 7.50 per cent with immediate effect.
"We have to be very careful about immediately associating our repo rate hike to growth implications. Sometimes, the knowledge that inflation will be lower can actually enhance growth prospects rather than reduce growth prospects," he said.
While the stock markets were rattled by the unexpected move to hike repo rate with BSE Sensex tanking nearly 600 points intra-day, the market recovered some ground to end with a loss of 383 points after Raghuram Rajan's comments in the conference.
Also, the rupee, which fell to 62.6 level, ended at 62.23 versus the dollar today.
Markets had pinned hopes on Raghuram Rajan to revive growth by cutting rates. The Sensex had vaulted over 10.5 per cent and rupee jumped over 12 per cent since September 4 when Raghuram Rajan assumed office.
Drawing attention to his decision to reduce marginal standing facility rate by 0.75 per cent to 9.5, he said the repo rate hike has to be looked in this context as well.
"It (repo hike) is clubbed with a substantial reduction in the MSF, which is growth positive. Analysts, when they look at this, should weigh the measures together rather than seeing it as a unilateral