Taking time off Governor Raghuram Rajan came over to ISB to interact with students on a wide ranging topics from the fiscal and monetary policy to job prospects at RBI. Reproduced below are edited excerpts from the interaction.
Monetary Policy and Demand Management There are two elements to the monetary policy. One is to manage demand to control inflation. The other is that its impact is felt in variable lags. This basically means that if interest rates are changed today they have an effect on demand eight or twelve months down the line. Typically in India we feel it only after at least three to four quarters. So what you need to do, is to forecast what happens to the economy a few quarters ahead. And because forecasting is very difficult; since you must use all the data that you have, so it is a tough job. And that is why we typically wait for all the data to come in before making any decisions.