Former Reserve Bank of India Governor Raghuram Rajan said on Monday that the central bank will have to raise policy rates like other countries due to inflationary pressures. In a post on LinkedIn, Rajan said this move should not be seen as against the interests of the economy.

“At such times, politicians and bureaucrats will have to understand that the rise in policy rates is not some anti-national activity benefiting foreign investors, but is an investment in economic stability, whose greatest beneficiary is the Indian citizen,” he wrote.

Rajan said the “war against inflation” is never over. Data released by the government on April 12 had shown that India’s retail inflation has risen to a 17-month high of 6.95% in March. The previous high was recorded at 7.61% in October 2020.

It was above the Reserve Bank of India’s upper tolerance band for a third straight month. The central bank aims to keep retail inflation between 2% and 6%.

Rajan, who earlier served as chief economist for the International Monetary Fund, reminded the central bank of what happened during his tenure from September 2013 to September 2016.

He said when he took charge as the governor, India’s inflation had soared as high as 9.5%. India was also in the midst of a “full-blown currency crisis” with the rupee depreciating sharply, Rajan added.

“The RBI raised the repo rate from 7.25% in September 2013 to 8% to quell inflation,” he wrote in the post. “As inflation came down, we cut the repo rate by 150 basis points to 6.5%.”

Repo rate is the interest rate at which the central bank lends to commercial banks.

This move, he said, helped stabilise the Indian economy and the rupee. He noted that inflation came down from 9.5% to 5.3% between August 2013 and August 2016. Growth picked up from 5.91% in June-August 2013 to 9.31% in June-August 2016, he added.

“The rupee depreciated only mildly over three years from 63.2 to 66.9 to the dollar,” he said. “Our foreign exchange reserves rose from $275 billion in September 2013 to $371 billion in September 2016.”

He, however, agreed that not everything was “RBI’s doing” and other factors had also contributed.

Rajan said that the Reserve Bank of India has maintained low inflation and interest rates through turbulent times such as demonetisation and the coronavirus pandemic.

“Today, reserves have climbed to over $600 billion, allowing the RBI to calm financial markets even as oil prices have climbed,” he said.

Referring to the 1990-1991 currency crisis, caused by higher oil prices, Rajan said that the central bank had to approach the International Monetary Fund then. He credited the Reserve Bank of India’s sound economic management for ensuring this did not happen again.

The former Reserve Bank of India governor said that increasing policy rates is an unpopular move. But he added that, “It is essential that the RBI does what it needs to, and the broader polity gives it the latitude to do so.”