New Delhi: There is no immediate need for the central government or the Reserve Bank of India (RBI) to take any step to influence the rupee’s exchange rate against other currencies as the economy is in a comfortable position, principal economic advisor in the finance ministry Sanjeev Sanyal said here.
Speaking at a panel discussion on India’s economic outlook at an event organised by the Public Affairs Forum of India, Sanyal said that the RBI is well equipped with a robust foreign exchange reserve of $400 billion, and there is no doubt about the central bank’s ability to step in the market if the rupee weakens too far too soon.
At present, the cooling inflation does not make a case for using interest rate to influence the exchange rate.
“The question is do we jack up interest rates? My view is it is unnecessary at this point in time,” said Sanyal. A wider differential in interest rates in India and in Western economies could in theory aid capital inflows into the country helping the rupee strengthen.
Sanyal’s comments come on the eve of a review of the economy by Prime Minister Narendra Modi on Saturday where independent economists are also expected to participate.
Sanyal pointed out that the rupee had stayed steady against global currencies barring US dollar over last five years, suggesting that the domestic currency’s recent weakness against the greenback is a matter of appreciating dollar.
Without naming China, the principal economic advisor also referred to the neighbouring country’s weakening of its currency in response to a trade war with the US.
“We don’t want to interfere. If rupee goes too far too soon, it is an option we can look at. So far interest rates are concerned, the monetary policy committee’s first mandate is to control inflation,” Sanyal said arguing why there is no case for an interest rate hike.
Moderating food prices have helped Inflation measured by the consumer price index (CPI) in August to rise 3.69% from a year earlier and down from July’s 4.17%, official data released on Wednesday showed. Retail inflation in August is a ten month low.
Economists who were present on the occasion said India’s economy is set to grow at a stable rate of 7 -7.5% in the near-term. Omkar Goswami, founder and chairperson of Corporate & Economic Research Group Advisory Pvt Ltd. said that one matter of concern for India is the addition of 12-13 million people to the work force every year. In a world driven by knowledge, technology and machines, 80% of the extra 12 million workforce are absolutely unprepared for employment in terms of education and training, said
Goswami. The other matter of concern is that even if people will be better off with economic growth, income inequality is on the rise.