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Since Rajan became governor early last month, he has shown skepticism about the capacity of monetary policy to spur economic expansion in India, which is plagued with bureaucratic obstacles and creaking infrastructure that inhibit business investment and make moving goods more expensive. The former IMF chief economist known for having predicted the 2008 global financial crisis surprised many when the first policy statement under his leadership hiked the benchmark interest rate instead of letting it stand -- or even cutting it as many business leaders would have liked. By doubling down with another raise in the rate, he makes his priorities clear as well as his view that the economy needs to attract more investment rather than cheaper rates. "Zeroing in on inflation, despite the weak growth backdrop, is appropriate in light of the lingering inflation pressures and the elevated inflation expectations," said Lief Eskesen, HSBC's chief economist for India and Southeast Asia. Others, though, worried about further dragging down growth with the tight credit policy. "The RBI must realize that if India Inc. and Indian citizens curb borrowing and stop investing, the economy may end up in coma," said Siddhartha Upadhyay of the think tank Interactive Forum on Indian Economy.
[Associated
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