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No need to worry about exchange rate volatility: Raghuram Rajan

Reserve Bank of India Governor disagrees that exchange rate was causing a drop in India's exports

Shutapa Paul
Published: Mar 12, 2016 10:01:12 PM IST
Updated: Mar 12, 2016 10:34:34 PM IST
No need to worry about exchange rate volatility: Raghuram Rajan
Image: Mexy Xavier
Reserve Bank of India Governor Raghuram Rajan believes India's exchange rate was broadly in the right place

Reserve Bank of India Governor Raghuram Rajan said that there was a need to go after willful defaulters as he delivered the inaugural Ramnath Goenka lecture series in New Delhi on Saturday. “If you start investigating every loan gone bad, I think it will kill industry. Need to go after malfeasance,” Rajan said. He also added that lenders and borrowers cannot be painted with the same brush and in the current economic climate it was difficult to write off large-scale debts.
 
Speaking about the exchange rate, Rajan disagreed that it was causing a drop in the exports. He said that the exports could be improved by enhancing productivity, bettering infrastructure and simplifying regulations. “The bottom line is that even though Indian trade has been slowing, the slowdown is similar to what has been happening elsewhere, with a significant portion due to a fall in commodity prices and a smaller share due to a fall in trade volumes,” Rajan said. “While goods exports may have suffered a little more over the last year, it is too early to discern a clear pattern, and certainly hard to pin the slowdown on the exchange rate.” Indian exports have plummeted consecutively for 14 months and are down by 13.6 percent to USD 21 billion in January.
 
Stating that the ideal exchange rate would be neither strong nor weak and that our exchange rate was broadly in the right place. “While RBI would not claim to know precisely what the equilibrium level of the exchange rate is at any given point in time, we intervene to moderate adjustment whenever we believe the movement is extreme, driven by sentiment, and likely to be reversed. Our intent is to prevent overshooting and undue volatility, rather than to stand in the way of the needed adjustment,” Rajan said. The RBI Governor added that Indian exports were performing well compared to other emerging markets.
 
Earlier in the day Rajan called for global rules of conduct for central banks. Revving the hopes of an interest rate cut when the RBI decides its monetary policy on April 5, Rajan said that the country’s fiscal deficit target for 2016-17 had come as a comfort to the central bank. Union Finance Minister Arun Jaitley stuck to the fiscal deficit target of 3.5 percent of the GDP in his Budget on February 29.

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