No ‘big bang jump’ for rupee onto world stage: Raghuram Rajan

RBI governor Raghuram Rajan on Tuesday said the inclusion of Chinese yuan into IMF’s reserve currency basket may lead to more devaluation of the currency but ruled out any such “big bang” internationalisation for the rupee.

RBI governor Raghuram Rajan on Tuesday said the inclusion of Chinese yuan into IMF’s reserve currency basket may lead to more devaluation of the currency but ruled out any such “big bang” internationalisation for the rupee and favoured a “steady” opening up.

Raghuram Rajan said inclusion of Chinese yuan into IMF’s reserve currency basket may lead to more devaluation of the currency but ruled out any such “big bang” internationalisation for the rupee.(REUTERS File Photo)

“The Chinese devalued the yuan initially but then stopped and, in fact, it came up a little since then. Perhaps, with the Chinese inclusion in the SDR (special drawing rights) basket of the IMF, we may see a little more of devaluation,” Rajan told reporters at the customary post-policy review conference with analysts and economists.

However, when asked about the rupee, which has not been able to leave a similar mark on the world stage as its Chinese counterpart, Rajan sounded a bit defensive, saying we are on a cautious but steady process of internationalisation and will not go in for “big bang measures.”

Enumerating the steps taken to open up the market in recent months, which include increasing the FPI limits for foreign investments, a review of the ECB guidelines done on Monday and also the Masala Bonds, he said, “all these are in direction to open a little more, but at the same time, it is not a big bang where we lose control over the process, it is a steady process.”

“We are taking steps, we are steadily moving towards being a much more open economy while keeping (in mind) some of the concerns about stability,” the governor added.

When asked to compare India and China vis-a-vis internationalisation and their financial markets, Rajan said each has its own strengths.

“On some dimensions, we are ahead of China. In terms of the degree of competitiveness within the banking system, some of the markets we have made some steps which put us ahead,” he said. But China is ahead in terms of the size of the economy, extent of trade, denominating trade in the yuan, he added.

“We are taking steps, we are steadily moving towards being a much more open economy while keeping some of the concerns about stability,” Rajan said.

The International Monetary Fund on Monday welcomed the yuan into its elite reserve currency basket, recognising the ascendance of the Asian power in the global economy.

The yuan, also known as the renminbi, will join the dollar, euro, yen and the pound next year in the basket of currencies that the IMF uses as an international reserve asset.