Can Rajan score another goal with monetary policy?

Reserve Bank of India governor Raghuram Rajan is all set to make his debut monetary policy statement on Friday. With the US Federal Reserve’s welcome announcement to continue with its bond buying stimulus package and the rupee recovering, markets are expecting the governor to withdraw some of the measures that his predecessor undertook to check the outflow of funds.

Despite some signs of improvement, deciding on whether or not to hike interest rates is not going to be easy for this former IMF chief economist. Persistent inflationary pressures and slow economic growth are some of the factors that may tilt the scales against an interest rate cut.

Rajan had made it very clear in his inaugural speech that managing the monetary policy was the basic mandate of the apex bank but objectives of economic  growth cannot be ignored. This was to assure markets that the apex bank and the finance ministry were on the same page after deep cracks between the two institutions had emerged to the surface towards the end of D Subbarao’s tenure as the RBI governor.

Rajan’s appointment as the 23rd governor of the RBI on 4 September has been welcomed by various stakeholders – including analysts, corporate honchos and investors – who expect him to bring about a turnaround for the Indian economy.