RBI Guv warns against inflation, fiscal deficit, yet again - Moneycontrol.com

The Reserve Bank Governor, Raghuram Rajan today brought the spotlight on emerging market economies (EMEs) need to focus on strengthening its internal structure-by combating inflation and fiscal deficit.

Also read: Decoding Rajanomics: Tame inflation; govt must boost growth

Rajan was speaking after receiving the 2013 Deutsche Bank Prize in Financial Economics, making market analysts and economists sit up yet again by some thought provoking observations.

Rajan said, "EMEs have to focus on the internal structure of economy and I would argue that a better anchor for them in these circumstances is basically domestic inflation and to try and contain domestic inflation. That might be better than focus on external anchor."

Rajan also warned against capital flows and said that they can have the danger of over stimulation of demand.

"Going forward, I think the external consequences are large and we also thought exchange rate was the way countries' economies were separated, so allow exchange rate to adjust to allow yourself to have independent monetary policy. That was the claim that worked for a while, but with cross border capital flows and leverage, that prescription is becoming much harder. So, I think it's time to have a discussion, open a discussion," Rajan further added.

Rajan's hawkish views on inflation control are in line with his actions and statements made at September 20 monetary policy.

Also read: RBI may tighten more in October policy meet: Poll

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