On a day when the rupee and stock market went down Reserve Bank of India (RBI) Governor Raghuram Rajan said on Monday India has sufficient foreign exchange reserves to prevent volatility in the currency market.
India has foreign exchange reserves of around $380 billion and it would be used if needed to subdue the volatility in the currency market, he said on the sidelines of a banking conference held here.
According to him, if there is undue volatility then the country has the resources to manage it. The rupee hit a fresh two-year low of 66.47 to a dollar.
Speaking at the conference, Rajan referring to his earlier comments that the central bank is not a cheerleader for the economy said it was not the role of RBI to elevate sentiments unduly to deliver booster shots to the stock markets.
“We do not have to look too far beyond our borders to see the consequences of such boosterism. Rate cuts should not be seen as goodies that the RBI gives out stingily after much public pleading,” Rajan said.
“Instead, what is important is sustained low inflation, something the prime minister emphasised in his Independence Day speech, and rate cuts are a natural consequence that the RBI has no hesitancy in delivering,” Rajan added.
He said there was much to be optimistic about the economy as massive investments are starting in infrastructure; radical changes in the financial sector; tremendous sweep of information technology across every facet of Indian life.
“The Indian economy is full of possibilities, even as much of the world is mired in pessimism. Indeed, I have been arguing that the fragility of the world economy is precisely because it has focused on quick fixes rather than deep reform,” Rajan said.
“The question for us as a society is whether we have the discipline to do what is necessary at a time when global conditions are propitious – commodity prices look like they will stay low for a time, helping the fight against inflation, and there is plenty of money around the world and at home, looking for investments, including in distressed assets, that can help us clean bank and corporate balance sheets,” he said.
According to him, what sets poor nations apart from the rich was not people or resources or even luck but good governance, which comes from strong frameworks and strong institutions.
“A summary explanation of the economic problems of the recent past is that they arose because India outgrew its institutions. A summary of the Government and the Reserve Bank’s measures to restore sustainable growth is that we are building the necessary institutions,” Rajan said.