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Rajan says taking steps to 'firewall' the economy

By Neha Dasgupta
May 13, 2016 18:37 IST
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In 2013, India suffered its worst currency crisis in more than two decades but has regained the confidence of foreign investors in part after its current account deficit has narrowed sharply and its foreign exchange reserves hit a record high

Reserve Bank of India Governor Raghuram Rajan said extending the country's external debt maturities, implementing sound policies, and building up foreign exchange reserves were the best "firewall" to defend the country's economy.

"I think the real way we are trying to firewall the economy is, on the first hand, with good policies, including as I said, the moves on reforms that have been enacted recently," Rajan told TV channel CNBC in an interview that aired on Friday.

"The second is by trying to increase the maturity of our debt," he added. "We have substantially increased the maturity of debt, external debt that we owe. The third is we built-up reserves."

In 2013, India suffered its worst currency crisis in more than two decades but has regained the confidence of foreign investors in part after its current account deficit has narrowed sharply and its foreign exchange reserves hit a record high.

No reason for India govt to sell dollar bonds

There is "absolutely no reason" for the Indian government to borrow in dollars and the rest of the developing world must be careful not to become too reliant on foreign capital, Rajan said on Friday.

"I see no reason for the sovereign to issue dollar bonds across the world," said Rajan, speaking at an event at the Chicago Booth business school in London.

"When India can borrow freely and long-term in domestic currency, there is absolutely no reason for it to go out and start a dollar borrowing programme...We will continue to borrow locally."

He said many developing countries had already started feeling the consequences of too much borrowing in hard currency.

"The lesson for all of us is make sure you get fundamentals right and don't get too reliant on foreign capital... it's not something critical to (India's) development," he added.

Rajan also said foreign investors would continue to get more access to Indian rupee bond markets.

"We have been increasing that (quota) every six months and as we feel more confident about the pace of the economy and the prospects for the global economy and no surprises, we will look at that."

Indian core inflation remains sticky and a bit higher than policymakers would like to see, Reserve Bank of India governor Raghuram Rajan said on Friday.

"Broadly core inflation has a been fairly sticky, a bit higher than we would want. It hasn't moved up and down. We will continue on the task of anchoring expectations," Rajan said, speaking at an event at the Chicago Booth business school in London.

Rajan also said India was in the midst of a slow recovery though there were signs of faster growth, with possible acceleration coming from a good monsoon.

He added that a banking sector clean up was underway and with the help of a bankruptcy law recently passed by parliament, the country's banks would have room to lend to the economy.

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Neha Dasgupta
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