India central banker unlikely to enter currency war

Mr Raghuram Rajan has voiced criticism of nations using exchange-rate depreciation to boost their economies.
Mr Raghuram Rajan has voiced criticism of nations using exchange-rate depreciation to boost their economies.PHOTO: REUTERS

MUMBAI • Indian central bank governor Raghuram Rajan will probably stay out of any currency war triggered by China's yuan devaluation judging from his policy stance to date.

Mr Rajan has voiced criticism of nations using exchange-rate depreciation to boost their economies and said this month it is better to let the rupee "find its level" with the central bank stepping in only to curb volatility. Standard Chartered and Barclays say that Mr Rajan's inflation focus, falling oil prices and a possible increase in US interest rates this year will prevent him from depreciating the rupee aggressively.

Mr Rajan won the trust of global funds by boosting the rupee from a record low in August 2013 and waging a war against price increases. He has resisted pressure from the Finance Ministry in keeping borrowing costs among the highest in Asia.

Curbing living costs is key for sustained growth in Asia's third- largest economy, where most people live on less than US$2 (S$2.8) per day. Indian exports have fallen for seven straight months as the rupee strengthened against currencies of trade partners in the past year even as it fell 5.6 per cent against the dollar.

"I don't think China's move will trigger a currency war and even if it does, the Indian central bank is unlikely to be drawn into it," said Mr Divya Devesh, Standard Chartered's Asia foreign-exchange strategist in Singapore. "If the rupee outperforms the region, the (central bank) will step in to limit the extent of the currency's over-valuation in real effective terms, as it has been doing."

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A version of this article appeared in the print edition of The Straits Times on August 13, 2015, with the headline 'India central banker unlikely to enter currency war'. Print Edition | Subscribe