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New Delhi, June 24
Reserve Bank Governor Raghuram Rajan on Friday promised to provide liquidity and correct any disorderly market behaviour following UK’s vote to walk out of the European Union, saying that after initial investor worries over Brexit, funds should return to India.
He said he was concerned about currency intervention by nations to create a competitive advantage and asked Central banks around the world not to cause currency devaluations.
The RBI, he said, is watching all markets both internationally and domestically and “will provide domestic or foreign liquidity in appropriate amounts”.
As of now, Rajan said in a conference call from Basel, all the markets seem to be working and “if there are disruptions in the markets and liquidity is not available from certain quarters, we are fully ready to provide whatever liquidity is needed... both dollar liquidity as well as rupee liquidity”.
Asked about impact on outflows, Rajan said that India should not see any major foreign selling given its relatively better fundamentals relative to other economies.
He further said that there would not be outflows as long as the country keeps moving forward with reforms like GST, and international investors remain reassured about the growth prospects.
“I think money has to go somewhere,” he said.
Volatility goes through every market as all are interconnected, and naturally, some concerns will spill over from one market to another, he said.
“But I think that at these times, it is important to remember that India is less exposed to the external sector than many other countries. To some extent, we are not a significant commodity exporter, which is going to be hurt by a significant slowdown in global growth... we are a commodity exporter in a number of areas where we might benefit especially as the price of oil comes down,” he said.
Rajan is attending a meeting of heads of central banks from various countries in Switzerland. They get into ‘Basel huddle’ every second month at the headquarters of the Bank for International Settlement (BIS), popularly known as bank for central banks.
Today’s ‘huddle’ is taking place amid global financial turmoil following the Brexit.
“The economy itself is on a stronger growth path than elsewhere. And therefore, after the initial worries about the consequences of ‘Brexit’... people will look around for places which are relatively less affected... after the initial concerns, money should return here,” Rajan said.
The rupee has been relatively well behaved compared to many other currencies, he added.
“We haven’t seen the 6-7 per cent change that has happened in say in Mexican Pesos or to some extent the Pound,” he said.
Asked how long would volatility last, he said, “I don’t think immediately there will be a significant adjustment because remember there is a two-year period over which the exit is negotiated. So immediately nothing is affected.” He expressed hope that there would be a dramatic effect on trade other than overtime through both these policy effects as well as currency effects.
As for the Indian banks abroad, he said, the changes in currency values do affect them based on what kind of net exposures they have to different currencies, but broadly because there have been movements up and movements down.
“Unless you are overly exposed to one particular currency, I don’t think immediately there is a cause for worry. But of course, we will monitor their balance-sheet situations,” he said.
On concerns over the $20 billion FCNR(B) redemptions later this year, Rajan said: “We are prepared in terms of the outflows. We have been taking delivery of currency steadily over time. And I think when the time comes, we will have plenty of additional dollars to repay whatever deposits flow out.” — PTI
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