An independent central bank is essential for ensuring stable and sustainable growth in any economy, said Raghuram Rajan, Governor Reserve Bank of India (RBI).
“The best way central banks can support growth over the medium term is by keeping inflation low and stable,” Mr. Rajan said in a speech at the 10th Statistics Day Conference held at the RBI headquarters in the city.
“Without any political push back as inflation rises, it is necessary to build institutions to ensure macroeconomic stability. Perhaps this is why successive governments, in their wisdom, have given the RBI a measure of independence,” he said. “Such concerns would also support the current government’s decision to enshrine its commitment to low inflation through a formal inflation target and the formation of a monetary policy committee.”
Inflation targetingThe Centre and the RBI have entered into an agreement to bring down inflation to 4 per cent over the medium term. Mr. Rajan, who was appointed at the central bank’s helm for a three-year period in September 2013, has said he will not seek a second term. Some politicians from the ruling BJP-led coalition had criticised the central bank for not doing enough to support growth, including making timely interest rate reductions. “Criticism of the central bank using arguments unsupported by evidence is widespread,” Mr. Rajan said.
“The Bank of England was criticized for laying out the economic costs of Brexit, the European Central Bank has been criticized for doing too much to restore health to troubled peripheral economy financial sectors.” Mr. Rajan said it was important that governments look beyond “motivated public criticism and protect the independence of their central bank to act.”
