He also maintained that RBI's move to clean up balance sheets of banks is not aimed at reducing the risk-taking appetite of company owners.

"I do not think interest rates are what hold back the economy today," Rajan, who had cut interest rate by 125 basis points, or 1.25 percent, in 2015, but left them unchanged in December and yesterday's bi-monthly policy review said.

He said there was "a time when people said I was nuts to even think of bringing inflation down below 6 percent. They said I was subjecting the economy to severe stress. But all that is in the background now."

In an apparent rejection of theory that slump in oil prices has helped bring down inflation, he said the government has 'kept back' 75 percent of the oil price bonanza through higher taxes.

Rajan said RBI uses 'appropriate' instruments, including open market operations to infuse long-term liquidity, whenever needed.

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