Why Raghuram Rajan Said RBI is No Cheerleader

RBI Governor Raguram Rajan on Tuesday said the central bank is no “cheerleader”.

Dr Rajan was answering a question on whether a “booster” rate cut by the RBI would have been the way to go rather than the “smaller” cut in Tuesday’s monetary policy.

“The RBI is not a cheerleader. There are other people in the economy who can play the role of the cheerleader. Our job is to give people confidence in the value of the rupee, in prospects of inflation, and having established that confidence, create longer term framework for good decisions to be made.

“Every time an exporter come to me and says that stability has been very valuable for us to make decisions, that reinforces my view that these are our main roles, not to act as booster shots or cheerleaders,” Dr Rajan said.

The RBI cut repo rate – the rate at which it lends short-term money to banks – for the third time this year by 0.25 per cent to 7.25 per cent.

While the rate cut was in line with what most economists had expected, India Inc and some analysts had hoped for a 50 bps or 0.50 per cent rate cut.

Dr Rajan said he expected banks to pass on the benefits of the rate cut to end-consumers.

The central bank chief also reiterated that RBI can’t be “reckless” with its rate movement. “Can’t be reckless, we need data to give us more room to move on rates,” he said.

“We have done what we could, given the current room. We have erred a little towards giving impetus to investment,” Dr Rajan said.

Investment is still weak and it has not seen a strong pick up, he said.