Rajan ends his term with caution on interest rates

Raghuram Rajan, whose term as the 23rd Governor of the Reserve Bank of India (RBI) ended on September 4, had a word of caution on interest rates for the global economy.

During his three-year term as the RBI Governor, Rajan repeatedly refused to lower the interest rates, and also ended his term holding up a caution against the move.

"Low interest rates globally could distort markets and would be difficult to abandon. Countries around the world, including the United States and Europe, have kept interest rates low as a way to encourage growth. But countries could become trapped by fear that when they eventually raised rates, they would see growth slowdown," Rajan told New York Times in an interview.

His statement comes at a time of global slowdown when countries are trying to boost growth by all means.

Rajan, who is only the second RBI Governor not to get a second term since 1991, told the NYT his departure was based on his inability to reach an agreement with the government on serving longer but not serving another full three-year term.

During his term, he was caught in a backlash with top political leaders who alleged that he kept the interest rates high and choked growth.

However, Rajan told the NYT: "I don't think it's fair to say that it's because of tight policy that the government wanted to move on."

"He (Rajan) cited the government's move after he announced his departure to set a low inflation target of 4 per cent for the next five years. He said his successor, Urjit Patel, a central bank deputy governor who takes over this week, played an important role in setting the country's tough inflation targets," said the daily.

Rajan advised the Reserve Bank to continue to keep low inflation as its priority. He said that because of the RBI's tight monetary controls, inflation currently borders around the upper limit of 6 per cent set by the government.

--IANS

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