RBI’s Rajan Says Rupee at 55 a Dollar ‘Too Strong,’ Mint Reports

An exchange rate of 55 per dollar for India’s rupee, almost 9 percent higher than current levels, seems “too strong” as of now, central bank Governor Raghuram Rajan said in an interview with the Mint newspaper.

The local currency has rebounded 15 percent from a record low of 68.845 touched in August, the best performance among world currencies, according to data compiled by Bloomberg. It weakened 0.2 percent to 59.99 today, after touching 59.60 yesterday, the highest level since July.

Rajan, a former International Monetary Fund chief economist who took charge of the Reserve Bank of India in September, didn’t give a specific range on the rupee, the Mint reported. A study by economists at the finance ministry has suggested a rupee range of 60 to 62 against the dollar was “reasonable” after considering India’s inflation and export competitiveness, the report cited the governor as saying.

“The situation has turned too quickly in India and comments from the RBI indicate that the reversal in the rupee is way too fast,” Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Singapore, said in a phone interview. “If rupee appreciation continues at the recent pace, it has a potential to hurt the economy by impacting export competitiveness.”

The central bank would want to cut interest rates if the pace of consumer-price gains, which was at 8.1 percent in February, falls to 6 percent before the January 2016 deadline, Rajan said in the interview. The RBI will have to tighten policy if it finds the CPI goal won’t be reached within the targeted timeframe, he was cited as saying by the report.

The governor left interest rates unchanged at a review on April 1 after consumer-price inflation eased to a two-year low and the rupee strengthened. The decision was predicted by 36 of 39 economists in a Bloomberg survey, while the remaining three expected an increase.

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