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Interest rates may ease after stability in forex market

The Reserve Bank of India will have greater space to cut policy rates in the coming days if the rupee were to stabilise, a top policymaker has said.

“I do hope that as stability returns to foreign exchange market, it will be possible for monetary policy to adopt a looser stance,” C. Rangarajan, Chairman to the Prime Minister’s Economic Advisory Council, said at Skoch summit here today.


Rangarajan said there was a need to bring back stability in the economic situation.

India had deviated from the basic attributes of stability – price stability, forex stability and stability in fiscal system – in the recent years, he said.

This needs to be corrected, he said, adding that the main task before Raghuram Rajan – the new RBI Governor – will be to improve the price situation, stimulate growth and ensure financial stability.

“The RBI policy review is in another 2-3 weeks. We will have to see what happens to the pressure on rupee. The RBI will have a greater space if the rupee gets stabilised in this period,” Rangarajan told reporters here.

“In some sense, the adjustment to the rupee is called for. The depreciation to the rupee will help contain current account deficit,” he said.


Rangarajan said it was important for the country to take a fix on the total subsidies as a percentage of GDP.

“If providing food security is paramount, please provide it but make sure you act on the other subsidies. So that total subsidies as a proportion of GDP is maintained at a particular level.”


Rangarajan said that there was a need for speedy completion of projects to spur growth. The investment rate of 30 per cent, although lower than the earlier level, is good enough to achieve higher growth rates.

Even with a minimal intervention, it should still be possible to achieve a higher growth rate, he said.


Rangarajan also said that principle of competition and efficiency should be applied on all sectors.

India does not need regulators in every sector, he said, adding that it would be contrary to the principle of competition.

“We need regulators only in those sectors of the economy where public interest is involved. As far as possible, we should let the

C. Rangarajan, Chairman, PMEAC.
C. Rangarajan, Chairman, PMEAC.

prices be determined by the competitive markets,” Rangarajan said.

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