Raghuram Rajan, former governor of the Reserve Bank of India, speaks during a Bloomberg Television interview. (Photographer: David Paul Morris/Bloomberg)

Needn’t Be Too Worried About The Rupee, Says Raghuram Rajan

India should focus on strengthening its macroeconomic fundamentals instead of worrying about the depreciating rupee as Asia's third-largest economy heads into an election year.

That's the advice from former Reserve Bank of India Governor Raghuram Rajan, who believes India should work on bringing down its current account deficit and maintaining fiscal stability.

This is the time when the country should focus on macro stability considering it is going into an election year.
Raghuram Rajan, Former Governor, Reserve Bank Of India

The Indian rupee has weakened nearly 9 percent, so far this year, making it the worst performing Asian currency weighed down by a U.S.-China trade war and Turkey-led emerging markets currency rout.

That's not too big of a worry right now, according to Rajan. “I think it (rupee) hasn’t depreciated to worrying levels, it’s dollar strength around the world,” he told Bloomberg Television in an interview on the sidelines of the Jackson Hole Symposium.

Rajan is credited with stabilising the rupee during his stint at the central bank, by introducing a slew of measures including the foreign currency non-resident deposit scheme. The rupee had fallen sharply in 2013, due to a combination of factors including weakening macroeconomic conditions in India, and the taper tantrum that gripped global markets.

Meanwhile, India’s current account deficit is expected to widen to 2.8 percent of the gross domestic product this financial year, according to a Nomura report. That’s much higher than the 1.9 percent seen in fiscal year 2017-18.

On Emerging Markets

Emerging markets are one of the largest risks to global markets, said Rajan, adding that they have not adapted to trade uncertainties yet.

"Emerging markets depend heavily on trade. It becomes a toxic mix when you combine that with the rate hikes and the leverage they have,” he said.

Rajan further pointed out that some fundamentals are once again as high as they were before the financial crisis of 2008.

“We are all very well aware that two things built up before the last financial crisis - leverage and asset prices. Both are pretty high right now. We thought that after the crisis of 2008, we’d bring down leverage - we haven’t. It’s moved from some balance sheets to other balance sheets, but overall it’s increased,” he said.