ET Now caught up with Raghuram Rajan, Governor, RBI, for his macroeconomic outlook. Excerpts:The first thing to note is that the critical change that has come about is a reduction in the current account deficit. We are not seen as of now in the same boat as Indonesia or Turkey. Second important point, is some of those countries are also experiencing some political instability, in particular Turkey. We have to show (that we are a politically stable country), and I hope, post elections that we are still a very stable country. Lower current account deficit combined with political stability will provide international investors the primary reassurance. Secondary reassurance is brought by the fact that we managed to raise money when we needed it and we had plenty of it. There would have been plenty more, if we needed it.We recognized the possibility that that signal could have sent out. That is why the language accompanying the statement was very carefully drafted. Before the inflation data came out, when we sat down and wondered how we would frame the policy, we said that we can not do something else every six weeks and that we need to allow some more time for the forces that we think are underway to play out and see if they are playing out the way we think. Even before the WPI and CPI numbers came, we were basically saying we probably should be on hold this time unless there is a dramatic change. Let us wait for a little more time to see the forces play out to see how this is impacting inflation before deciding our next move. Otherwise, we may go the other way.We keep doing this without seeing what is happening, giving some time as we may be in danger of over tightening and that has its consequences also, especially in a weak economy. Now where does the disinflationary force come from? There are multiple sources. One is of course is the supply affect, which is food inflation, and with good harvest etc as well as with vegetables coming in the winter months, you would expect that to dampen down. But longer-term inflation, we think the output gap which is negative that is relative to potential, we are producing far less, which means that there is some disinflationary pressure built in because of that. Now that takes some time to establish itself.The fact that the currency has appreciated over the last few months will also play out and you see some of the advanced warning that will play out in the PMI survey data. Those are forces that should play out and should cause a reduction in inflation. What are the hawks basically going on about it is that you have to raise interest rates to such a high level that expectations will strongly be that inflation will come down. Now the problem is that kind of discussion is based on developed economies where the expectations channel works quite well. In India it is less clear that expectations are based on forward-looking signals. The output gap affects are probably as strong, if not stronger, than the inflationary expectations. In other words, suppose I raise interest rates to 18% today. How is it going to feed through? It seems it feeds more through much lower demand rather than through suddenly people waking up and saying the central bank is really serious about inflation, therefore we should all curb our wage demands and therefore, this should bring down inflation. Both have roles, but it seems to me the output gap has probably a greater role. We want to see how that works. That is why we emphasised this is not a pause, this is not a stop. This is basically waiting for data. Now when I said single data point, what we had was essentially a single data point -- vegetable prices.Let us see. Let us wait for some more time. At a point like this, we have to be very responsible in how we take interest rate measures. Let us take the data fully. What we have said very clearly is we are waiting for the next round of data and if we think inflation is still high, we will act accordingly. But at this point when the economy is relatively weak, you do not want to be trigger happy. You want the data to clearly tell you something. We will act accordingly. We have said that very clearly.Yes, the interpretation can be what it is. We will not be railroaded by the markets or by investors.No, there are different markets. There are bond markets. There are equity markets. There are money markets. There are analysts. We raised interest rates in September when nobody expected us to raise interest rates, and markets took it very badly. But we did it nevertheless. I do not want to essentially do things without thinking very clearly about it. Without having a firm basis to act. What we are doing is waiting for the next round of data. We have said again and again that we are firmly against inflation. As far as expectations go, that should anchor expectations a little more. We also think the output gap effects are going to start kicking in and we will calibrate our actions based on what we see. People are bringing in their experiences from all over the world and saying this is what it should be, but how expectations form in India and what are channels of formation, you cannot be very theoretical about it. That is why we are being very practical. Let us see what is happening. We will act accordingly. We do understand that you want to be ahead of the curve. We think we bought a little bit of time by moving before anybody expected us to move and if necessary, we will move more.I do not think you are being ambiguous for the sake of being ambiguous. There was theory that you should be that way, but we have to be very careful that we do not say more than we know. We want to see how the disinflationary process plays out. As I have said before, there are a number of reasons we expect there to be some disinflation playing out in the system. Let us give it a little bit of time. I have also said that the pace of disinflation has to be appropriately calibrated to the strength of the economy. We are in a different environment. If growth was strong, there would be no question. We would raise interest rates given that growth is very strong. With growth weak, we have two effects – one, there is a disinflationary effect coming from the weak growth and second, you want to be careful about over tightening. After all we are a developing economy, our safety nets are weak. So we have to be calibrated and we will be.I think there are a number of issues that need to be worked on, not just ownership. It is not the ownership which is critical. You can have different kinds of banks, it is the way governance is done.With given ownership and we have to find ways to do that. There are ideas floating around. In my BANCON speech, I did say that this was the next sort of area that we needed to work on, which is have a dialogue with the public sector bankers, with unions. People like that and get a sense of how we move forward. Given the coming competition in the banking sector, private sector banks are gearing up to expand, and foreign banks eventually will expand. There is a tremendous change coming in. Public sector banks have done a lot in the past. Some of them have state-of-the-art technology. They need to gear up to use their capabilities to meet the competition and that means we should not leave them with hands tied behind their backs to fight. Everybody in the public sector banks has to recognise we cannot continue limiting competition, that competition will come. When I talk to union people, I come away refreshed that the younger sort of crowd, with is now the main sort of stream there, is fully convinced that they need to change.