Focus on macro economy, rupee will stabilise: Raghuram Rajan
25 August 2018
Raghuram Rajan, former RBI governor, has said India need not worry much about the weakening of the rupee if the authorities focus on macroeconomic stability.
In a recent interview with Bloomberg, the 55-year-old economist praised the Narendra Modi-led government for bringing down fiscal deficit, but he said the current account deficit (CAD), which is expected to touch 2.5 per cent of GDP by the year-end, should be brought down.
“Just to be fair, the Indian authorities have brought down the fiscal deficit, what has expanded is the current account deficit – a lot of it driven by higher oil prices. Now, the rupee has depreciated but not to worrying levels. It’s sort of dollar strength around the world, and to some extent, the rupee had to depreciate over time,” the Bloomberg report quoted him as saying.
Not just India, he said other emerging economies should also focus on macroeconomic stability, especially those where election is due next year like India and Brazil.
The rupee has fallen to levels around 70-a dollar from around 63-65 a dollar a few months back. But Rajan suggested instead of worrying about the weakening rupee, the authorities should focus on economic fundamentals.
The falling rupee is putting pressure on corporates as borrowing costs rise for overseas loans. The rupee has fallen 9 per cent against the dollar this year, making it the worst performing Asian currency.
While India is recovering from a slowdown, but growing at about 7.5 per cent, Rajan said India should also ensure that the current account deficit does not blow out.
He also cited the vicious trade environment created by the US-China spat, which would have a debilitating effect on global trade.
Trade is an issue for the world to be concerned about. It is extremely important that we have good outcomes there. By all means negotiate, but don’t pull the nuclear trigger there, he told Bloomberg during the interview.