As stocks and rupee hit new lows, the Reserve Bank of India (RBI) governor Raghuram Rajan on Monday sought to allay investor fears, saying the country had strong macroeconomic fundamentals and sufficient forex reserves to contain volatility.
“I wish to reassure the markets that our macroeconomic factors are under control as the economy is in a much better position relative to many other economies,” Rajan told a banking summit on a day when the rupee plunged below 66.60 and the market tanked crashed by 1,624.51 points.
Rajan said the country had $380 billion (£242bn) in foreign exchange reserves, and the RBI “will have no hesitation in using our reserves when appropriate to reduce volatility in the rupee”.
The governor also hinted at lower interest rates, saying the RBI will look at lower commodity prices, astute food management by the government and strong anti-inflation policy stance of the central bank while coming to a decision about rates.
“Falling commodity prices and astute food management by the government should help RBI (lower rates)”, said Rajan.
He also said he sees oil prices remaining at low levels at for a year or two.
Amid free fall in global stock markets, the rupee on Monday crashed to 66.49 against the dollar, plunging a whopping 66 paise. The rupee has not seen such a low level in almost two years in opening trade on sustained capital outflows, even as the US currency weakened overseas.
In its biggest intra-day crash this year, the market benchmark Sensex plunged by 1,741.35 points – the third biggest ever and highest in over seven years since January 21, 2008, while Nifty fell below the 8,000 level in early trade on Monday due to heavy selling by funds amid a global sell-off as worries about China’s economy deepen.
Asian markets were also in deep in the red with Shanghai shares crashing eight per cent on concerns that the Chinese economy was slowing more than previously thought.
Responding to a question on the bloodbath in the market and whether he expects the free fall in the US and the Chinese markets to continue, Rajan said: “I think few expected the Chinese move.
“Now, given that it has become a focal point for markets to adjust, there was a sense that markets have been going up for some time without correction and when that happens it seems that people get nervous.
“We have to absorb this volatility… but as far as our economic fundamentals go, they are good and they will re-ascertain themselves eventually after certain amount of turmoil. And when they do that reassessment they (foreign investors) will see that India is a good place to be.
“I feel fairly confident that the turmoil will settle down and at that point we will be a good investment destination again,” Rajan added.