Former Reserve Bank of India Governor Raghuram Rajan on Friday said the central government should prioritise improving its macroeconomic fundamentals and played down concerns about the rupee’s depreciation.
In an interview to Bloomberg Television, Rajan said the Indian government should focus on reducing its current account deficit as it enters an election year. “Just to be fair, the Indian authorities have brought down the fiscal deficit. What has expanded is the current account deficit,” Rajan said. “I think it [rupee] has not depreciated to worrying levels, it is dollar strength around the world.”
The rupee is down nearly 9% so far this year, making it the worst-performing currency in Asia. The government has blamed external factors such as the slump in the Turkish lira for the depreciation, saying they will ease going forward. Analysts have cited the slump in the Turkish lira as one of the key reasons for the currency crisis.
The former RBI governor also warned that a combination of leverage rise, asset prices and trade wars could be a “toxic mix”. He spoke about a possible drag on international growth rates. “We are all very well aware that two things have built up, which had built up before the previous crisis, leverage and asset prices,” Rajan said. “Trade is an issue for the world to be concerned about. It is extremely important that we have good outcomes there. By all means negotiate, but do not pull the nuclear trigger there.”
Rajan’s statements come amid the escalation of a trade war between the United States and China. On August 23, the United States and China imposed fresh tariffs on $16 billion (Rs 1.1 lakh crore) worth of each other’s goods.