No Need to Panic, RBI can use Forex Reserves to Curb Volatility: Rajan

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As the rupee slips to 66.50 per dollar on Monday, its lowest since September 2013, Reserve Bank of India  (RBI) governor Raghuram Rajan said he was ready to use foreign exchange reserves to curb volatility in currency.

“Many of you are watching markets this morning worried about the continued volatility from last week. While I don’t want to opine on the future direction of markets, I will say that relative to other countries India is in a good position with strengthening growth, a low current account deficit and narrowing fiscal deficit, moderating inflation, low short term foreign currency liabilities and very size-able exchange reserves relative to imports and liabilities,” Rajan said.

While speaking at a banking event, RBI Governor said, “India was in a good position relative to other countries to withstand the current global markets volatility sparked by steep falls in Chinese equities.”

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.

On rate cuts, Rajan reiterated any rate cuts would be carried out in response to inflation and not to “public pleading.”

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

“Instead, what is important is sustained low inflation,” he added. “And rate cuts are a natural consequence that the RBI has no hesitancy in delivering.”

Rajan’s comments come as the benchmark BSE Sensex tumbled as much as 4.2 per cent to its lowest since October 2014, while the rupee fell to as low as 66.52 per dollar, its weakest since September 2013.

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