Bloomberg News

Rajan Says India’s Cooling Wholesale Prices Boost Rate-Cut Odds

April 17, 2013

Raghuram Rajan, chief economic adviser at India’s Finance Ministry, comments on inflation, the current-account deficit and growth. He spoke in an interview yesterday in New York.

On easing wholesale-price inflation:

“It increases the probability of more accommodative monetary policy. Whether it pushes it up a huge amount or a little bit is hard to say.

‘‘We have to wait and see, but the news on wholesale-price inflation has steadily been downwards. I feel quite comfortable now that wholesale-price inflation core is within the comfortable zone. Wholesale-price inflation has come down but consumer-price inflation hasn’t made any significant advances. That’s what we need to hope for.

‘‘If consumer-price inflation comes within a comfort zone, I don’t think there is any constraint on the RBI cutting rates.’’

On the current-account deficit:

‘‘Hopefully, the current-account deficit improves, so that doesn’t become a second reason why you worry about interest rates. It’s a balancing act and has been a balancing act for the last two years. There are no clean answers here so the RBI has to make up its mind.”

On economic expansion:

“Growth is below what you normally want. And especially the aspects of demand that the interest rate can affect, like investment demand and durables goods demand, they have sort of fallen.

‘‘So that would suggest that plenty of medicine has been applied, and we have to think whether too much has been applied. On the other hand, while you quell that kind of demand and, as a result, that kind of inflation is very, very subdued, food prices are still high.’’

To contact the reporters on this story: Tushar Dhara in New Delhi at tdhara1@bloomberg.net; Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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