Raghuram Rajan gave a message to RBI, said to focus on setting benchmark interest rates.
Amid suggestions to keep food inflation out of core inflation while setting benchmark interest rates, former Reserve Bank of India governor Raghuram Rajan has said he is against keeping food prices out of core inflation as it would lead to people’s ‘big money’ in the central bank. There will be loss of ‘confidence’ which the government has entrusted with the responsibility of keeping inflation under control.
Rajan further said that it is best to put inflation in a basket that the consumer consumes as this affects consumers’ perception of inflation and ultimately inflationary expectations. “When I came to power, we were still targeting PPI (Producer Price Index). Now it has no impact on the average consumer.
“So, when the RBI says inflation is low, then look at the PPI, but if the consumer is facing a different situation, they may not actually believe that inflation has come down,” he told PTI. Is.” Rajan was responding to a question on suggestions to keep out food inflation while setting benchmark interest rates in the Economic Survey 2023-24.
He said, “So if you leave out some of the most important parts of inflation and tell them inflation is under control, but food prices are skyrocketing or something else is rising, that does not count as inflation.” So you know they won’t have a lot of confidence in the Reserve Bank.”
Chief Economic Advisor V. Anantha Nageswaran, while advocating keeping food inflation out of rate setting in the Economic Survey 2023-24, had said that monetary policy has no impact on food prices, which are determined by supply side pressures. Are there. Rajan, who is currently a professor of finance at the US-based Chicago Booth, said the argument against keeping food inflation out is that ‘you can’t influence it.’
The eminent economist said, “You cannot influence food prices in the short run, but if food prices remain high for a long time then it means that there are constraints on food production relative to demand, which means that there has to be a balance.” You have to reduce inflation in other areas, which is what central banks can do.”
