The Indian Express (Delhi Edition)
1,000-pt scare, Rajan’s to-do list
After initial worries, money will come back; Rupee well behaved, says Reserve Bank Governor
‘REFORMS WILL BLOCK CAPITAL OUTFLOW’
WITH THE rupee and the stocks going into a tailspin, Reserve Bank Governor Raghuram Rajan on Friday ruled out any major capital outflow as long as the country moves forward with reforms and advised central banks across the globe to desist from currency depreciation to create competitive advantage in the wake of Britain’s exit from the European Union.
Rajan said that India should not see any major foreign selling given its relatively better fundamentals relative to other economies. “There would not be outflows as long as the country keeps moving forward with reforms like GST, and international investors remain reassured about the growth prospects. “I think money has to go somewhere,” he said.
He assured all necessary steps, including providing liquidity support — both dollar and the rupee — to ensure orderly conditions in financial markets. Stating that the markets are trying to factor the consequences of this development (Brexit) and this has already led to sharp corrections in financial markets around the world, Rajan said, “The economy itself is on a stronger growth path than elsewhere. And therefore, after the initial worries about the consequences of Brexit, people will look around for places which are relatively less affected. After the initial concerns, money should return here.”
The RBI Governor said the rupee has been relatively well behaved compared to many other currencies. While the rupee closed at 67.96 a dollar, down over one per cent from its previous close of 67.25, other currencies showed volatile movements.
“Currencies do help adjustment and some movement is warranted. What I have been concerned about is intervention in a big way in the currency so as to move it in a particular direction and create a competitive advantage. We as central bankers will have to get together and make sure we do not do it,” Rajan told CNBC TV18. “The Indian economy has good fundamentals, low short term external debt, and sizeable foreign exchange reserves. These should stand the country in good stead in the days to come,” Rajan said in a statement from Basel, Switzerland, where he is attending a meeting of heads of central banks from various countries.
Volatility goes through every market as all are interconnected, and naturally, some concerns will spill over from one market to another, he said. “But I think that at these times, it is important to remember that India is less exposed to the external sector than many other countries. To some extent, we are not a significant commodity exporter, which is going to be hurt by a significant slowdown in global growth. We are a commodity exporter in a number of areas where we might benefit especially as the price of oil comes down,” he said.
“We haven’t seen the 6-7 per cent change that has happened in say in Mexican Pesos or to some extent the Pound,” he said. On the volatility, he said, “I don’t think immediately there will be a significant adjustment because remember there is a two year period over which the exit is negotiated. So immediately nothing is affected.”
Rajan expressed the hope that there would be a dramatic effect on trade other than overtime through both these policy effects as well as currency effects. As for the Indian banks abroad, he said, the changes in currency values do affect them based on what kind of net exposures they have to different currencies, but broadly because there have been movements up and movements down. “Unless you are overly exposed to one particular currency, I don’t think immediately there is a cause for worry. But of course, we will monitor their balance sheet situations,” he said.