The rupee will gain long-term stability if inflation remains within targeted levels, RBI Governor Raghuram Rajan said at a panel discussion.
Speaking at the CII – Singapore Symposium 2016, Rajan said the rupee inflation being much higher (than in other currencies) is a thing of the past. Even putting that aside, over the long-term, depreciation in the rupee matches the inflation differential.
“If inflation stays at 4 per cent, the years of extreme volatility in the rupee are over. So if a foreign investor wants to invest in India for the long-term in infrastructure projects, the exchange rate at the end of the project will be a second-order concern.” Talking about the US Federal Reserve eventually normalising its near-zero interest rates, the RBI Governor said there are schools of thought now that believe the period of extended monetary stimulus may have retarded economic growth.
“Within industrial countries, there are now concerns about their long-term growth. They are seeing headwinds post-crisis which were masked for a while by the easier borrowing,” said Rajan.
But countries must not impose economic costs on each other in their attempts to grow, he cautioned, foreseeing the difficulties in exchange rates and capital flows once the US raises its interest rates.
Tharman Shanmugaratnam, Deputy Prime Minister of Singapore, also addressed the Symposium, which discussed opportunities for enhancing global connectivity in capital and trade related activities.