Rajan says inflation views aligned with government

MUMBAI Mon Feb 24, 2014 7:03pm IST

(Reuters) - Reserve Bank of India (RBI) Governor Raghuram Rajan said the government and the central bank shared similar views on inflation management, while reiterating a call for the U.S. Federal Reserve to be more sensitive to emerging economies.

Rajan's comments, in an interview with CNBC, come after Finance Minister P. Chidambaram last week chided the central bank over its focus on fighting inflation, saying the RBI needed to abide by government policy to promote economic growth.

An RBI panel last month proposed the introduction of inflation targeting into monetary policy, with the specific aim of a consumer price index (CPI) of 4 percent, with a 2 percent band on either side.

The RBI has raised interest rates by three-quarters of a percentage point since September to bring down consumer inflation, which fell to 8.79 percent last month from double digits in November, even as the government has traditionally preferred to focus on bolstering growth.

"It's not as if the government is on a different page on what we've been doing on inflation thus far. They may have different views on what they would like to see done, but there is a process, there is a conversation," Rajan said in an interview with CNBC, broadcast by Indian channel CNBC-TV 18 on Monday.
"I think there is fair amount of coordination at the highest level."

The government and the central bank have often been at odds in fighting inflation.

While the central bank has often blamed the government's expansive fiscal policy and failure to ease infrastructure bottlenecks for high inflation, a growth-obsessed government, at times, has found it hard to digest interest rate increases.

"NO DISAGREEMENT"
The RBI is not technically independent - the governor and his deputies are appointed by the government - although it generally enjoys latitude in policymaking.

Rajan said the central bank panel report on inflation was consistent with the government's stance.

"We have a committee which has suggested a target, which is also by the way, consistent with the process the finance ministry's committee has suggested, so there is no disagreement about the broader need to get a framework in place," he said.

"I think in terms of how I see the process, is really that the government sets the objective, and the central bank delivers on that objective," Rajan said.

Rajan also reiterated his call for the Federal Reserve to take into account the impact of its withdrawal of monetary stimulus on emerging economies, despite saying he was comfortable with the current pace of tapering.

"I actually welcome a measured pace of tapering. The only thing I have been calling for is that in the communication there should be some sensitivity to conditions in emerging markets," Rajan told CNBC.
"And this is not from our perspective, this is broadly emerging markets, some of whom have been in trouble in the last few months. But I am fully prepared for a tapering that continues at this measured pace."

(Reporting by Neha Dasgupta and Subhadip Sircar; Editing by Robert Birsel)