RBI will have to raise interest rate

New Delhi: Former RBI Governor Raghuram Rajan on Monday said the central bank will have to raise interest rates to tame inflation and the hikes need not be considered as some 'anti-national' activity by politicians and bureaucrats.

Known for his frank views, Rajan said that it was important to remember that "war against inflation" is never over. "Inflation is up in India. At some point, the RBI will have to raise rates, like the rest of the world is doing," he said in a Linkedin post.

Costlier food items pushed the retail inflation to a 17-month high of 6.95 per cent in March, much above the upper tolerance level of the RBI while the wholesale price-based inflation rose to a four-month high of 14.55 per cent in March, mainly due to hardening of crude oil and commodity prices.

"Politicians and bureaucrats will have to understand that the rise in policy rates is not some anti-national activity benefiting foreign investor, but is an investment in economic stability, whose greatest beneficiary is the Indian state," he emphasised.

Rajan is currently a Professor at the University of Chicago Booth School of Business. Earlier this month, the Reserve Bank of India (RBI) kept borrowing costs unchanged at a record low for the 11th time in a row in a bid to continue supporting economic growth despite inflation edging higher. The benchmark interest rate was retained at 4 per cent. The central bank's six-member Monetary Policy Committee (MPC) had also decided to stick to an accommodative stance "while focussing on withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth."