- RBI Rajan Says Monetary Policy to Remain Accommodative
- China Devaluation Surprised Central Bankers but Rajan Confident in Chinese Leadership
- Fed's Rate Hike Better if Sooner and Slower
The global central banking elite met at the annual symposium in Jackson Hole, Wyoming, in the United States of America at the end of August. Reserve Bank of India (RBI) Governor Raghuram Rajan made headlines with his comments on the Chinese Yuan devaluation, the looming interest rate hike by the U.S. Federal Reserve and of course the strength of the Indian recovery.
Mr. Rajan continues to receive accolades for his work as the head of India’s central bank. He acted as a buffer in the political transition from Prime Minister Narendra Modi’s government and that of his predecessor Manmohan Singh. Since Rajan’s appointment India has signaled to markets a willingness to attract foreign investment with the promise of much-needed reforms. The eventual election victory by Modi’s party has made India a solid choice with the start of infrastructure investments and a stable currency guided by Governor Rajan.
India has outperformed other emerging markets thanks to a combination of a stable political environment; lower energy import prices and a transparent central bank have shielded the Rupee and the Indian economy from the macro headwinds that have dampened growth in other parts of the world. Strong economies attract capital, and India has proven that it has all the components for continued growth. Inflation has fallen thanks to low energy prices and Mr. Rajan has said the RBI intends to keep its monetary policy accommodative, but as any good policy maker he commented that the central bank is ready to act if conditions change.
The RBI Governor was surprised with the unilateral decision by China to devalue its currency but shares the belief that a correction was necessary if China is to recover its impressive growth rate as it works through its overcapacity. Rajah was quick to praise the Chinese authorities as he understands the complexity of the transition that officials are dealing with.
U.S. Federal Reserve Hike
Governor Raghuram Rajan has said it is better if the Federal Reserve raises interest rates sooner if it will lead to a slower tightening cycle, rather than the American central bank waiting and be forced to hike faster that could trigger more harmful volatility. The head of the RBI held rates in the August monetary policy meeting but has hinted to a fourth rate cut this year if needed to boost the economy.
India has a chance to break further away from the EM pack as the economy has been supported by external and internal factors that have been nurtured by the government and the independent central bank under Raghuram Rajan stewardship. Global challenges will continue to arise, but stronger economies will be able to reap the benefits and reach their growth objectives.