Reserve Bank of India governor Raghuram Rajan on Monday said India’s record foreign exchange reserves will act as a cushion against rupee volatility once global interest rates starts rising, triggered by capital outflows as a result of easy money polcies across the world, which have been encouraging asset bubble.
He also said that RBI will play the role of an “enabler” to fast track the process of financial inclusion and undertake efforts like “to nudge” banks to offer all the basic products to address financial needs.
“Monetary policy is doing too much. Monetary authorities are boosting asset prices rather than the economy. Especially my colleagues in industrial countries are trying too hard,” he said while replying to an audience question after delivering the 20th Lalit Doshi Memorial Lecture.
Rajan, however, exuded confidence that this time volatility won’t be as high as last year when there were huge outflows and the rupee sank close to 69 against the US dollar.
“I have no doubt that when rates start picking up in industrialised countries we will
be tested by capital outflows. My hope is that we have done enough in terms of strengthening the macroeconomic framework and building up reserves to buffer up the economy,” he said.
India’s foreign exchange reserves rose to more than $320 billion so far this calendar year, aided by dollar inflows.
Rajan said the financial inclusion drive, likely to be announced by Prime Minister Narendra Modi on August 15, will break the link between poor public services, patronage and corruption.
“It can break a link between poor public service, patronage, and corruption that is growing more worrisome... It is not a cure-all, but will help the poor out of poverty and towards true political independence,” he told his audience.
Lashing out at politicians, the RBI governor said, “ The system tolerates corruption because the street smart politician is better at making the wheels of the bureaucracy creak, however slowly, in favour of his constituents.”
Rajan also said the central bank is looking at simplifying the know your customer norms.
(With agency inputs)