Markets crash: India has sufficient forex reserves to contain currency volatility, says Raghuram Rajan

Mumbai: Raghuram Rajan, Governor, Reserve Bank of India Raghuram Rajan, Governor, Reserve Bank of India PTI
Amid bloodbath in stock and currency markets, RBI head Raghuram Rajan on Monday tried to allay fears saying the country has strong macroeconomic fundamentals and sufficient forex reserves to contain volatility while he also hinted at a rate cut if inflation remains low.

“I just want to indicate that we have plenty of reserves which was $355 billion (at the last count), plus $25 billion that exist because some of our forward sales. We have got $380 billion to play with,” Rajan told a banking summit on a day when the rupee plunged below 66.60 and the market tanked 4%, its worst single-day fall in seven years.

“I wish to reassure the markets that our macroeconomic factors are under control as the economy is in much better position relative to many other economies,” Rajan told the IBA-Ficci organised banking summit Fibac.

Hinting at a rate cut given the low inflation, record low crude and other commodity prices, Rajan said: “We will strive to give you the lowest interest rates that is consistent with our effort at bringing inflation under control. We are looking at incoming data ever since the last policy to see how things fare out.”

Quoting from RBI’s August 4 policy document, he reiterated the bank’s resolve to keep inflation under control and help boost growth with a low interest rate regime.

“Significant uncertainty will be resolved in the coming months, including the likely persistence of recent inflationary pressures, the full monsoon out-turn, as well as possible Federal Reserve actions. As the Reserve Bank awaits greater transmission of its front-loaded past actions, it will monitor developments for emerging room for more accommodation,” Rajan quoted from his August 4 speech.

Stating that low current account deficit, fiscal deficit discipline, moderate inflation, low short-term foreign currency liabilities, and very sizeable base of forex reserves make our economy better-placed relative to many others,

Rajan said, “we will have no hesitation in using our reserves when appropriate to reduce volatility in the rupee.” On yuan devaluation, Rajan said the Chinese move is the result of the extraordinary monetary policies that been going on across the world.