No apprehension in using reserves to reduce rupee volatility: RBI’s Raghuram Rajan

On continued volatility of the market, Rajan said, “While I don’t want to opine on future directions of markets, I would say, relative to other countries India is in a good position with strengthening growth, low current account deficit, narrowing fiscal deficit, moderating inflation, low short term foreign currency liability”.

Rajan said India’s macro-economic problems were “under control”, and noted that the central bank remained focused on helping economic growth by bringing down inflation. “Rajan pointed that although consumer inflation has fallen sharply, inflation expectations among the public has gone up”.

To assure investors, he added that the Reserve Bank of India will not have any hesitatation in using foreign exchange reserves to reduce currency volatility.

The rupee slumped almost 1 per cent to hit a low of 66.49 per dollar on Monday, its lowest since September 2013. Asia’s third-biggest economy has about $380 billion in reserves, he said.

The Governor also hinted at lower rates, saying the RBI will look at emerging room for more accommodation on the back of lower commodity prices, astute food management by the government and strong anti-inflation policy stance of the central bank.

“Rate cuts should not be seen as goodies that the RBI gives out stingily after much public pleading”, Rajan said.

Asian markets were also in deep red with Shanghai shares crashing 8 per cent on concerns that the Chinese economy was slowing more than previously thought.

Yet after bringing down the repo rate by three-quarters of a percentage point to 7.25 percent so far this year, the RBI kept its policy rate on hold at its last review earlier this month as it sought more clarity on inflation.

Rajan has resisted pressure in recent weeks from India’s Finance Ministry to add to three interest-rate cuts this year.