A rate cut at this point is wishful thinking: Rajan

Tags: News
Countering advocates of an interest rate cut to boost growth, RBI Governor Raghuram Rajan today said it is "wishful thinking" and the notion that the central bank is standing in the way of economic expansion is "nonsense".

"Somehow there is a sense among some bureaucrats and industrialists that you cut the interest rate and magically get growth. I think at this point it is a wishful thinking.... The notion that RBI is standing in the way of growth is nonsense," he said.

Rajan, who in the third quarter monetary policy on last Tuesday raised the key interest rate by 0.25 per cent to 8 per cent to check inflation, said the best way to promote growth is keeping inflation low.

"Once inflation comes down, then in circumstances when growth is very weak you will have room to cut the interest rate sharply so as to create a condition for growth without worrying about inflation," he said in an interview to Karan Thapar for CNBC TV18.

Rajan in a separate interview to Bloomberg TV said there is no trade off between inflation and growth and added that unless prices come under control it would not be possible for banks to reduce interest rates.

He also said it would not be possible for banks to cut deposit rates in the absence of low inflation.

On differences with the Finance Ministry about cutting interest rate to boost growth, Rajan said the government and RBI are in constant dialogue.

"We are working with the government in stabilising the economy. And when there is huge amount of outside turmoil today, it is extremely important that we both be seen on same page," he said.

"Of course, there will be discussion and both are big organisations. Somebody will speak and somebody else will speak. But there is a huge degree of understanding and communication between the RBI and government".

Post new comment

E-mail ID will not be published
CAPTCHA
This question is for testing whether you are a human visitor and to prevent automated spam submissions.

EDITORIAL OF THE DAY

  • For those who are left to survive a war-torn world, let there be peace

    The hunger games have begun, and they have started reaping our children. There is no way around it.

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

Chander Mohan Sethi

CMD, Reckitt Benckiser India

COLUMNIST

Urs Schöttli

Shifting sands in the Far East

As was to be expected, Japanese prime minister Shinzo Abe ...

Zehra Naqvi

When humanity died, bestiality prevailed

The terrorist attack that killed 132 children in Peshawar has ...

Bubbles Sabharwal

Why self-esteem must be your best friend forever

Two negatives do make a positive! Imagine no doubts, no ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture