Tokyo: Reserve Bank of India (RBI) Governor Raghuram Rajan said on Friday he expected to join hands with the country`s new government to bring down high inflation.
Rajan, speaking at a seminar in Tokyo, said the new government`s plan to curb food inflation seems sensible and that he expected the public`s inflation expectations to fall in the future.
Indian bond yields fell on Friday after Rajan`s remarks, showing the level of concern about high inflation and investors` anticipation that the RBI will continue efforts to stabilise the economy.
"There is a sense of conviction about our plan to bring inflation down to 8 percent this year and 6 percent next year," Rajan said.
"This information has gotten out to the public. The public`s inflation expectations have fallen and I think expectations will fall further in the future."
The benchmark 10-year bond yield fell 4 basis points to 8.61 percent by 0429 GMT following the comments.
Since Rajan took the helm of the RBI in September, the RBI has raised interest rates three times by a total of three-quarters of a percentage point in an attempt to curb persistently high inflation.
Consumer price inflation picked up in April, while wholesale inflation moderated but remained at elevated levels.
Rajan is a former International Monetary Fund chief economist and is widely viewed as India`s most capable technocrat, winning the respect of investors for his handling of a currency crisis that hit Asia`s third-largest economy last year.
Rajan said he was worried about non-performing assets in India`s banking sector but wanted to work with the new government to solve this problem quickly.
India`s current account deficit, which has caused concern about economic imbalances, could fall to 2 to 2.5 percent of gross domestic product in medium term, he also said.
Narendra Modi was sworn in as India`s prime minister this week after a sweeping election victory with a mandate to deliver better governance and economic stability.
There are concerns Rajan could come under pressure from the new government to take a less hawkish stance on inflation to revive economic growth and create more jobs.
Inflation is now running at double the RBI`s longer-term 4 percent target, at a time when economic growth has fallen to its slowest in a decade.
Economic policy is arguably the most important area for India`s new government as it seeks to drag the country out of its economic torpor and create enough jobs for the 10 million young people who join the workforce each year.