governer's opinion

THIRUVANANTHAPURAM, FEB 15:

  

Reserve Bank Governor Raghuram Rajan has stressed that neither the regulator nor the government favours undervaluation of exchange rate as a way to sustain growth in the economy.

He said this while delivering the inaugural address at the India MSME Summit 2016 hosted by the Confederation of Indian Industry.

"When people look at growth of countries like China, Japan and Korea, sometimes they argue that the way enterprises grew was through an undervalued exchange rate...and that what we should try in India is undervalue the exchange rate and grow on that basis," Rajan said.

There are lots of problems with undervaluation of the exchange rate, some of which is reflected in the conditions these countries find themselves in today.

"I personally believe that sustained undervaluation over a long period of time is not a feasible or desirable strategy.

"Which is why I firmly believe that the RBI’s philosophy of not focusing on the level of exchange rate and trying to manipulate it up or manipulate it down... but trying instead to minimise situations of extreme volatility and intervening in situations when the exchange rate becomes extremely volatile in either direction is the right one....""

Exchange rate will not be a source of either comparable advantage or comparable disadvantage, Rajan said.

"We want to make it reasonably predictable, reasonably stable but the advantage will come from the capabilities of the small and medium enterprises...from their cost-effectiveness, innovativeness, the ideas, from the systems, rather than some kind of exchange rate undervaluation. That is not any way the intention of the Reserve Bank and the Government of India," he added.

BY THE HINDU