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Primary focus is not investor or market but consumers: Rajan - The Hindu

Business Economy
Published: January 28, 2014 12:06 IST | Updated: January 28, 2014 23:02 IST

Primary focus is not investor or market but consumers: Rajan

Special correspondent

RBI Governor Raghuram Rajan during the announcement of RBI monetary policy
at RBI Headquarters, in Mumbai on Tuesday.

PTI

In a major shift in policy preparation, the Reserve Bank of India (RBI), on Tuesday, focussed more on retail inflation,
known as consumer price index (CPI) inflation, rather than its traditional stress on wholesale price index (WPI)
inflation. Clearly, we have made a lot of noise on the CPI inflation for sometime, and the RBI has always focussed on
WPI and CPI. But given the fact that CPI has stayed high for a considerable amount of time and considering the retail
investors as well as the consumers, we have to bring it down, said Raghuram Rajan, RBI Governor,at a press
conference here.
The Urjit Patel committee report had given a timeframe, which seems reasonable by which we can bring down the
CPI to what is reasonable, Dr. Rajan added. The panel has indicated a glide path for disinflation that sets an
objective of below 8 per cent CPI inflation by January 2015 and below 6 per cent by January 2016.
The primary focus is not the investor, not the market, it is the Indian consumer, that how do we bring inflation down
so that their welfare can improve, Dr. Rajan added. He said that over the ensuing 12-month horizon, and with an
unchanged policy stance, there were upside risks to the central forecast of 8 per cent. Accordingly, an increase in the
policy rate by 25 basis points is needed to set the economy securely on the recommended disinflationary path.
Overtime, said Dr. Rajan, we have to figure out how we make the CPI index betterbut the fact is that it is not
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1/28/14

Primary focus is not investor or market but consumers: Rajan - The Hindu

perfect it is too high, and we have to bring it down. However, he said that some of the suggestions required the
government and the RBI to come on board. So, as and when we proceed on the recommendations, we will have to
have a dialogue with the government.
The report has recommended flexible medium-term inflation target. We will take a close look at it, and take up what
we need to. It is premature to say we have moved (the policy) towards inflation targeting. There can be no question,
and time and again we have said that we need to bring inflation down.
Based on our models, when we factor in this rate hike, we should be able to reach the 8 per cent objective by the end
of the year. Core (inflation) tells us something about the second round effects. We look at all components like some
aspects of services like, say, education, have been growing up strongly. So, the important point here is that inflation is
not really food inflation but more than that, Dr. Rajan added.
If we cut rates, for example, do you think banks would have cut their deposit rates? Dr. Rajan asked. The deposit
rate is high because inflation is high. The customer wants a real rate of return. If RBI cut policy rates, it is not going
to create an immediate reduction in the banks cost of funds nor a filter through into the borrowers cost of funds and
not going to create immediate demand, he said.
Cut in peoples budget
The high vegetable prices cut into peoples budget and they didnt have money to spend on other things...We have no
magic, we have to work at it. We think that what we have done so far, given the relative weak state of the economy
plus the fact that we will see some effects of stabilising of the currency, we have confidence that we can bring inflation
to tolerable limits over the course of the year and that can give us some room on the monetary front which can then
be fought too. But first lets fight the fight that needs to be fought, he said. As far as growth is concerned, he said we
are waiting for the government steps to play out, and they will all add up together to aid stronger growth and wait for
appropriate action in the coming quarters.
PTI adds:
A vigilant owl
The Reserve Bank brass took to ornithology to explain its policy stance and its intents as it took everyone by surprise
with a rate hike on Tuesday.
We are neither hawks, nor doves. We are actually owls, Governor Raghuram Rajan said, eliciting loud laughter at
the customary post-policy press conference here.
He was answering a question on the self-contradiction in the RBIs third quarter monetary policy, which is hawkish in
its stance as it unexpectedly raised rates, but dovish in its guidance because of indications of a pause.
An owl is traditionally a symbol of wisdom. So, we are neither doves (nor hawks)...but owls, and we are vigilant when
others are resting, Deputy Governor in-charge of Monetary Policy Urijit Patel elaborated.
The broad point is that dont try and put us into buckets. We are doing what is necessary for the economy, Dr.
Rajan chipped in again.
He cited the last policys experience as a case, saying it was decided to hold on because of the RBIs focus on being
vigilant.
I think the last time we wanted to say we were vigilant but waiting for more data flows. That meant we didnt act but
we wanted to convey the signal that we were ready to act, he said.
The RBI would have more room to cut interest rates, and might also advance the rate cuts if the inflation cooled faster
than expected.
Keywords: RBI policy review, RBI monetary policy, anti-inflation measures, growth momentum, Indian
economy, GDP growth, Raghuram Rajan, consumer price index, CPI, wholesale price index, WPI

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