Raghuram '007' Rajan faces pro-growth boss in Narendra Modi

May 31 2014, 11:48 IST
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Investors are looking to PM Narendra Modi to stir India's economy, putting Raghuram Rajan and Modi on a collision course if inflation stays high. Investors are looking to PM Narendra Modi to stir India's economy, putting Raghuram Rajan and Modi on a collision course if inflation stays high.
SummaryHailed as troubleshooting 'James Bond', Raghuram Rajan had been given a licence to kill inflation.
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trying to convince the government, and I think it won't necessarily be a bed of roses. But I think it is a right step," said Rajeev Malik, senior economist at CLSA in Singapore.

Inflation targeting and setting up a monetary policy committee - as Rajan proposes - both require legislative changes. Agreeing on the make-up of a committee, including whether the government would appoint members and who they might be, could prove contentious.

Rajan recently softened his tone, noting that inflation targets are for the medium term and are flexible, and that the proposal does not aim to turn the RBI into "inflation nutters".

However, he was uncharacteristically blunt on the subject of RBI independence in other recent remarks.

"I am happy to talk to the government, I am happy to listen to the government, but ultimately the interest rate that is set is set by me," he said at an event in St. Gallen, Switzerland.

"The government can fire me, but the government does not set monetary policy."

On Friday, Rajan struck a measured tone during remarks in Tokyo, which sent Indian bond yields to a four-month low.

"The government and the central bank have both stressed the need to emphasise the need to bring down inflation, while respecting the fact that growth is very weak. You need to ensure through a variety of means we sustain the growth process," he said.

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