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India’s Rajan Says RBI Steps Don’t Signal Monetary Policy Shift

July 25 (Bloomberg) -- India’s steps this month to stabilize its currency should not be seen as indicating a forthcoming major shift in the central bank’s monetary policy stance, the Finance Ministry’s chief economic adviser said.

“These measures should be seen not as a precursor to a substantial change in monetary stance, which, thus far, has been on the easing side,” Raghuram Rajan, the top adviser in the finance ministry, said in an interview to Bloomberg India TV today. The steps taken so far should be sufficient, he said.

The Reserve Bank of India raised two interest rates and drained liquidity in the past two weeks to steady the rupee, joining nations including Brazil and Indonesia in tightening policy to check currency volatility. The steps were in contrast to the lowering of the benchmark repurchase rate three times this year, as growth weakened to the slowest pace in a decade.

“By stabilizing the rupee, we will also enhance the possibility of stronger growth,” said Rajan. “Because the inflationary consequence will be contained and, hopefully over time, that will give RBI room to be more accommodative.”

The central bank’s next policy review is due July 30.

To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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