Rajan Says Rupee Value Reasonable as Devaluation to Fan Prices

  • ‘Currency is a complicated animal,’ RBI Governor says
  • India’s rupee is weakening in 2016 for a sixth straight year

India’s rupee is reasonably valued and a devaluation of the currency will spur inflation and not necessarily help exports, according to central bank Governor Raghuram Rajan.

“Currency is a complicated animal,” Rajan said in the city of Hyderabad on Monday. “Some of our emerging market counterparts, for example Brazil, which have had significant devaluations, haven’t necessarily seen a tremendous expansion in their exports. So we have to be a little careful in saying devaluation is the answer.”

The comments from the Reserve Bank of India chief come after official data on Friday showed India’s exports rose 1.3 percent in June, ending a record 18-month declining streak. The rebound, however, failed to prevent the trade deficit from widening. The rupee is weakening for a sixth straight year, having declined 1.6 percent in 2016 to close at 67.1950 a dollar in Mumbai on Monday.

Devaluation “has a lot of side effects, including that inflation will pick up,” said Rajan, who has voiced his opinion against competitive currency devaluations in the past. “Broadly, my belief is today’s value of the rupee is pretty reasonable and I don’t think we should emphasize moving one way or the other as the answer to any problem.”

Rajan, whose three-year term as RBI governor ends early September, has been instrumental in curbing price gains in Asia’s third-largest economy while also helping lift the rupee from an all-time low seen just days before he took charge in 2013. A successor is yet to be named. Consumer inflation rose 5.77 percent in June from a year earlier, the fastest pace in 22 months.

Sovereign bonds fell Monday amid reports that Rajan signaled the monetary authority won’t cut interest rates at its review next month. The yield on notes due January 2026 rose two basis points to 7.29 percent in Mumbai, prices from the RBI’s trading system show.

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