A bus conductor displays Indian bank rupee notes for a photograph in Coonoor, Tamil Nadu, India. (Photographer: Dhiraj Singh/Bloomberg)

Raising Interest Rates Not Healthy For Rupee, Economics Affairs Secretary Garg Says

Economic Affairs Secretary Subhash Chandra Garg doubted the efficacy of raising interest rates to curb the volatility in the rupee.

Raising interest rates to curb the volatility of the rupee isn’t a healthy instrument, Garg said, adding that it has different effects on the equity and debt markets.

“The debt market isn’t as large as our equity market and thus raising interest rates isn’t an instrument available,” he said. “There are other measures that need to be taken.”

The Reserve Bank of India last week kept the benchmark lending rates unchanged at 6.50 percent, surprising analysts who had advocated a rate hike to curb the freefall in the rupee.

“The principal monetary policy anchor for the RBI is inflation,” Garg said in an interaction with Bloomberg TV. “The inflation was well in control and much lower than four percent. Thus, raising rates for inflation management wasn’t required.”

The domestic currency hit its record low of 74.45 against the dollar in trade on Thursday, driven by global trade tensions and rising Brent crude prices. “From a pure economic point of view, if other economies depreciate, Indian currency relatively depreciating isn’t bad from a competitiveness point of view.”

Watch the full conversation here: