Urjit Patel will continue his vigil over inflation, says Raghuram Rajan

Raghuram Rajan, governor of Reserve Bank of India (RBI), is confident that his successor Urjit Patel would be able to take inflation head on.

"I am confident that Urjit Patel, who has worked closely with me on monetary policy for the last three years, will ably guide the Monetary Policy Committee going forward in achieving our inflation objectives," Rajan said, speaking at the annual day address to Foreign Exchange Dealers Association of India (Fedai).

He added that the need of the hour was to move on the reforms path with caution and prudential guidelines from RBI should not be compromised. "RBI is a liberaliser. We have to be careful not to relax prudential regulations simply because an entity or activity is deemed to be of national importance," he said, referring to the relaxations sought by banks on infrastructure lending.

"To require lower provisions, or to allow higher leverage or ECBs against such activities, may increase systemic risk. It is far better for the government to directly subsidise such activities if it deems them important than for RBI to sacrifice systemic stability on the altar of national importance," Rajan said.

He added that unless global conditions become less uncertain, mini bang reforms are the need of the hour rather than Big Bang reforms. "Market reforms have proceeded at a steady measured pace. Observers may be impatient, but my belief is that steady and irreversible reform and 'mini-bangs' like yesterday's rather than 'Big Bang' is the need of the hour. As global conditions become less uncertain, the pace of reform can pick up. The lessons we have learnt during this period on what works will be invaluable then," Rajan said.