Regulators' job not to boost stock market, says RBI chief
Dec 14, 2014 12:42 PM GMT+0530 | 0 Comment(s)
Dec 14 (EconomyNext) - India's central bank chief has said it is not the job of regulators to prop up the stock market but to ensure a strong economic system to bolster growth even if it means becoming unpopular.
"Financial stability sometimes means regulators, including the central bank, have to go against popular sentiment," Reserve Bank of India (RBI) Governor Raghuram Rajan said.
"The role of regulators is not to boost the Sensex but to ensure that the underlying fundamentals of the economy and its financial system are sound enough for sustainable growth."
The S&P BSE Sensex is a benchmark of the Indian stock market comprising shares of 30 top companies.
Rajan is under criticism that the central bank is keeping interest rates high, making money market instruments attractive compared with stocks.
"Any positive consequences to the Sensex are welcome but are only a collateral benefit, not the objective," Rajan said while addressing a Federation of Indian Chambers of Commerce and Industry function.
In addition to inflation, a central bank has to pay attention to financial stability, India media quoted Rajan as saying.
"This is a secondary objective, but it may become central if the economy enters a low-inflation credit and asset price boom," he added.
The RBI Governor's statement assumes significance as industry has criticised the RBI for not reducing interest rates even when both the wholesale and retail inflation are at multi-year lows.
Indian Finance Minister Arun Jaitley too on several occasions had nudged the RBI to cut rates and the issue also figured during a debate in the Indian parliament last week.
Rajan, who has kept interest rates unchanged since January, had emphasised that interest rate cut by itself would not lift the economy.
"It is not the only thing which is holding back economic growth. But it would have some impact," Rajan said