Reserve Bank of India's (RBI) new governor Raghuram Rajan, faced with the 'impossible trinity' of a weak rupee, rising inflation and slowing growth, in his maiden monetary policy on Friday, is likely to resist business pleas to ease interest rates. However, 'The Guv', as Raghuram Rajan has been nicknamed, may scale back some of the emergency measures that have helped the rupee bounce from a record low. Having said this, Rajan is likely to strike a hawkish tone on inflation and reiterate the importance of low and stable inflation for sustained economic recovery.
Amidst accelerating pricing pressure and snail-pace economic growth, Rajan would be propelled to find a middle path, both for supporting economic activity and not adding fuel to inflation, which could give investors fresh reason to sell the currency.
Legendary for predicting the global financial crisis, Rajan took office at the Reserve Bank of India (RBI) on September 4 as India was confronting its biggest economic crisis since 1991 and wowed central bank-watchers with an action plan on his first day. The new guard, while taking the helm of Reserve Bank of India, postponed his maiden policy review by two days to watch Fed’s stance on its Quantative Easing Programme. Meanwhile, Fed surprised the market by maintaining its easy money policy, which in turn fuelled hopes of RBI reversing some of its cash tightening steps.
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