'RBI moderating extreme currency volatility with interventions'

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SME Times News Bureau | 26 May, 2016
Reserve Bank of India Governor Raghuram Rajan on Thursday said the central bank had been moderating extreme currency volatility through interventions.

"The RBI has been moderating periods of extreme volatility in currency through exchange intervention -- though only when the movement is excessive -- and increasing access to foreign exchange reserves, including pooling of reserves," Rajan said while inaugurating a meeting of SAARCFINANCE.

SAARCFINANCE is a network of central bank governors and finance secretaries of the eight-nation South Asian Association for Regional Cooperation (SAARC).

Terming a sharp slowdown in China a "significant risk" for global economy, particularly the SAARC region, Rajan said India had devised a four-pronged defence against external shocks that consist of "good policies, prudent capital flow management and swap arrangements, preventing extreme forex volatility, and building reasonable forex reserves".

"Good policy has been essential to our stability," he added.

The RBI Governor said India's swap arrangement with a number of SAARC countries had been drawn on by some to alleviate short-term foreign exchange needs and expressed the hope that these proved helpful.

"The sharp contraction in China's imports over the past year, for instance, had already led to spillovers through the trade, confidence, tourism and remittance channels and SAARC nations had not been able to avert its impact.

"More negative externalities could follow as the Chinese economy adjusts to a more sustainable path," he said.

On the Indian situation, Rajan described the steps taken to reduce the fiscal deficit, of containing inflation through a combination of better food management, and on a new inflation framework and calibrated monetary policies.

India had also embarked "on a cleanup of bad debts in the banking system so as to free bank balance sheets to support growth", he added.

Rajan lauded the performance of the SAARC economies, saying the region has shown continued resilience in the face of turbulent international markets, maintaining its spot as the fastest-growing region in the world.

The region, however, is now facing newer challenges arising out of uncertainties in other parts of the world, he said, adding that the risks can increase if the Chinese slowdown gathers more speed.

Rajan took charge of the RBI in 2013 at a time when the US Federal Reserve had declared its intent to wind down its stimulus programme, following which the rupee plunged in value with respect to the US dollar on fears of a spiralling current account deficit.

Through a series of measures, Rajan managed to stabilise the Indian currency that also brought back investors.

Meanwhile, with Rajan's current three-year term ending in the first week of September, an online petition pushing for a second term for him has gone viral and has gathered over 40,000 signatures in support.

The petition, filed a week ago on change.org by Bengaluru-based Rajesh Palaria, has been logging support at a fast rate and had recorded nearly 43,000 votes by Wednesday.

Many Indian corporate leaders too have recently voiced their preference for an extension in Rajan's tenure by the government.