Inflation may persist for longer; US Fed has tough task on hands: Raghuram Rajan

He said central banks, including the Fed, have a tough task on hands since economies are still recovering from the impact of the COVID-19 pandemic.

Rajan said central banks have to ensure that growth does not collapse when monetary stimulus is withdrawn.

He is of the view that inflation could persist for longer than what the market expects.

"In this situation, I think central bankers have a very difficult task. They have to ensure that growth doesn't collapse at the same time they have to control inflation. And with eyes on both, my sense is they typically will be behind the curve. So we will see higher inflation for longer than we would otherwise if they didn't have all these other considerations," he said.

In 2013, when the US Federal Reserve had said that it would start cutting back on bond purchases, financial markets globally had gone into a swoon.

This time, the Fed has so far been guarded in its language of tapering bond purchases. The widely held view in the market is that the Fed may raise interest rates ahead of schedule.