Raghuram Rajan says RBI will have to raise interest rates to tame inflation

Former RBI Governor Raghuram Rajan said that the central bank will have to raise interest rates to tame inflation and the hikes need not be considered an 'anti-national' activity by politicians and bureaucrats.

Rajan said that it was important to remember that the war against inflation is never over.

The RBI will have to raise rates like the rest of the world is doing, he said in a Linkedin post.

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

He emphasised that the rise in policy rates is not an anti-national activity for foreign investors, but rather an investment in economic stability, whose greatest beneficiary is the Indian state, which is the greatest beneficiary of this, according to politicians and bureaucrats.

Rajan is currently a professor at the University of Chicago Booth School of Business.

In order to continue supporting economic growth despite inflation edging higher, the Reserve Bank of India RBI kept borrowing costs unchanged at a record low for the 11th time in a row.

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 inflation stays within the target going forward while supporting growth.