Ex-RBI Chief Rajan Says India Rate Panel's Doing a Good Job

Also Read: SBI Chief Says Bad Loans To Fall In 2018 As Resolution Gathers Pace

(Bloomberg) -- Former Reserve Bank of India Governor Raghuram Rajan gave a vote of confidence to the monetary policy committee led by his successor, which has been facing criticism from some government advisers for keeping interest rates too high.

Speaking to Bloomberg Television in Davos on Tuesday, Rajan said the six-member panel headed by Urjit Patel "is doing a good job" in focusing on inflation. Price targets are useful for countries that suffer from high inflationary pressures, he added.

The decision to set up the panel was taken while Rajan was still at the RBI, but it came into force soon after the end of his term. The MPC has created an arms-length distance between the government and the governor -- who previously was the sole decider on interest rates -- reducing the possibility of friction between policy makers in the capital New Delhi and Mumbai where the RBI is based.

The RBI under Patel will keep the repurchase rate unchanged at 6 percent when it reviews policy Feb. 7, according to most economists in a Bloomberg survey, as inflation has breached the authority's target and is forecast to stay high. However, Ashima Goyal, a member of the Prime Minister's Economic Advisory Council, said last year that the central bank's tendency to overestimate inflation has cost the economy. The view was echoed by her colleague Surjit Bhalla.

Bank Clean Up

Apart from the MPC, Rajan was also instrumental in prodding Indian banks to start identifying and cleaning up about $210 billion of stressed assets on their balance sheets. Moody's Investors Service predicts the bad-loan ratio will peak this year and the chairman of State Bank of India, the nation's largest lender, told Bloomberg Television on Tuesday that 2018 will be a much better year for India on the non-performing asset front.

While it's too early to say if the worst is over, the government's move to push through a new bankruptcy law will help banks and companies work toward settling dues, Rajan said.

To contact the reporter on this story: Anirban Nag in Mumbai at anag8@bloomberg.net.

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Jeanette Rodrigues, Candice Zachariahs

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