Rate cut could have stoked inflation, yielded little, Says RBI Governor


New Delhi,August 6:Reserve Bank of India Governor Raghuram Rajan Wednesday defended his decision not to cut rates, saying the risk reward trade off was poor.

 "If the RBI had tried to be accommodative by cutting rate, it would have increased the risk of inflation, given rising expectations, weak monsoon and other factors," Rajan said.

A rate cut is just a signal. Soon after we cut rates in June, the Met department said that monsoons would be below average, and all the good signal went off immediately.So even signals, if not given at the right time, will not be helpful, he said.

He also said the position on monsoon will be clear by September and that the government was capable of handling food inflation by better management of foodstock.

He expects some volatility when the US Federal Reserve hikes interest rates, but was of the view that India would benefit once the dust settled, and investors looked for stable markets to invest.

He further said, concerns of a global deflation were exaggerated, since the US Federal Reserve's inclination to hike rates signaled that the US economy was in good shape.RBI would cut rates only if it was convinced that inflation would stay below 6 percent even after it cut rates.

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