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RBI Governor Raghuram Rajan vows to free markets for $1-trillion core sector investments

MUMBAI: Reserve Bank of India GovernorRaghuram Rajan aims to build sophisticated financial infrastructure in three years that will facilitate trillion-dollar core sectorinvestments, leading to sustained economic growth.

Further, now that the currency has stabilised, the dependence on external sources of
funding needs to be curbed and domesticsavings have to be encouraged, the governor, who took charge on September 4, said.

"We cannot rely too much on the outside world because we do not want to run large current account deficits...moderate CAD with a lot of saving domestically will allow us to still fund a significant amount of investment which we need," Rajan said in an interview to ET. "We have to give savers a good deal, be it outside savers or domestic savers. That match between savings and investment has to come about."

Despite anaemic economic growth, monetary policy should aim at bringing down 
inflationexpectations. Growth with low inflation will strengthen the economy, Rajan said. Many investors expect Rajan to raise the benchmark repo rate by 25 basis points on October 29.

October 29 is the date of RBI's next rate-setting meeting. On September 20, Rajan had raised the repo rate — the rate at which RBI lends to banks — by 25 basis points to 7.5%.

"By focusing on generating growth with low inflation in this country we will do the best thing we can to stabilise the value of the currency to stabilise capital flows," said Rajan. "So, let us focus on that. And the other would take care of itself."

The currency was stabilising, Rajan said, because of the growing expectation that the government would be able to restrict the current account deficit to less than $70 billion, the target set by the Centre.

Both the government and the central bank are on the same wavelength when it comes to what is good for the country, though the tools to achieve them may be debated about, at times even in public, which is a sign of the central bank's autonomy, he said. "Both sides want growth, both sides want low inflation," said Rajan.

"There is always a healthy debate on the pace and the instruments we use to achieve those objectives. Ultimately, I think this is true in every country and the whole issue is to try and convince the other side."

The recent currency and bond market turbulence will not hold back the central bank from moving ahead with the liberalisation of currency and futures trading, since a broader and deeper 
financial market is essential to fund economic growth.

"There is no intent to clamp down," said Rajan. "And if anything, what we have to see is how to deepen all our markets and that is going to be our focus. As things return to normalcy, we are going to look at our debt markets, look at our currency markets. Ultimately, you have to look at that number of ($)1 trillion, which is what we need for infrastructure investment over the next few years."