Raghuram Rajan, former governor of the Reserve Bank of India. (Photographer: Tomohiro Ohsumi/Bloomberg)

Central Banks Need To Be Left Alone, Says Raghuram Rajan 

Former Reserve Bank of India Governor Raghuram Rajan wants governments to leave central banks alone for the betterment of economies in the long run.

“They (central banks) do unpopular things but that is good in the longer run because it keeps inflation low, and keeps growth more stable than it would otherwise be,” Rajan told BNN-Bloomberg in an interview, adding that political interference in central banks may lead to adverse outcomes.

This comes after U.S. President Donald Trump nominated two of his long-time supporters as candidates for seats on the Federal Reserve.

The problem of “jawboning”, he said, could either lead to central banks “putting their back up or succumbing to political interference”. This leads to the view the central banks are “poodles”, he said, adding that such interference is problematic. “When inflation actually shows up, they (central bank) will not do what is necessary.”

In December, Urjit Patel quit as the Reserve Bank of India governor amid a standoff with the government over issues including the amount of capital the RBI holds and stricter banking regulation. Following Patel's exit, the government appointed Shaktikanta Das, a former bureaucrat, as the governor.

India has precisely the same challenges that the U.S. has at this point of time. How do we build those institutions that are needed for growth, and how do we tell people that sometimes, the role of these institutions is to say “no”, and to stand in the way of policies that seem obvious, cutting interest rates for example, just because it’s good in the longer term.  
Raghuram Rajan, Former Governor, RBI 

Watch the full interview here: