Softer money only if capital inflows revive: Rangarajan

The Reserve Bank of India's recent liquidity measures could be rolled back if there is a revival of capital inflows, C Rangarajan, chairman of the Prime Minister's Economic Advisory Council, said today.

India needs to find adequate capital inflows to finance the wide current account deficit, Rangarajan told a TV news channel.

The RBI left interest rates unchanged today as it supports a sliding rupee, but said it will roll back recent liquidity tightening measures when stability returns to the currency market, enabling it to resume supporting growth (See: RBI keeps liquidity tight to save rupee from external shocks).

Rangarajan defended the RBI's oblique money-tightening, saying changing the repo rate is not the only thing the market should look at, and the RBI action was along expected lines.

These measures can be withdrawn only when the rupee stabilises and the central bank is the best judge for a rollback of its earlier liquidity-tightening measures, he said.

He further said it is imperative to work on reducing avoidable imports which will enable tightening of the current account deficit. As an immediate measure, petroleum prices need to be adjusted faster, in line with what is happening globally.

When asked how to ascertain stability in rupee, he said this will be defined by return of capital flows to Indian market.