Chief economic advisor Raghuram Rajan on Thursday defended the steps taken by the Reserve Bank of India (RBI) to stabilise the rupee, saying these measures were the safest options available in the current situation.
The short-term liquidity adjustment measures, he said, were much more easier to reverse than monetary tightening through rate increases.
?There is no intention to kill growth. These measures to stabilise the rupee are a better substitute to more dangerous suggestions made by people, like raising interest rates,? Rajan told a television channel, adding the steps taken were temporary and that they were geared to stabilise a weak rupee in a way that only does ?minimal damage? to growth.
Rajan said the measures will not affect long-term growth, and that the government saw potential for growth in the next few quarters. He told another channel that the steps taken so far to stabilise the rupee were sufficient. Rajan also said that a stable rupee along with lower inflation will help the RBI to be more accommodative.
Over the past few weeks, the RBI, in its bid to stop the slide of the local currency which slumped to a record low of 61.21 to the dollar on July 8, has lifted short-term interest rates and made it harder for lenders to access funds. Analysts and policy watchers say the measures will lead to a weakness in credit quality across sectors and slowing growth.
?The key issue is to stabilise the rupee. But that does not mean we fix it at a particular level. What we are trying to do is assure the investors that the currency will not go into a freefall,? the chief economic advisor said.
When asked about the possibility of a sovereign or NRI bond issue, Rajan reiterated the government’s stand that all options were being considered to fund the country’s record-high current account deficit.