The rupee will gain long-term stability if price inflation remains within targeted levels, RBI Governor Raghuram Rajan said at a panel discussion here this morning.
“Rupee inflation being much higher than (in other currencies) in the world is a thing of the past. Even putting that aside, over the long-term, depreciation in the rupee matches the inflation differential,” Rajan said.
Elaborating on how much foreign investors would be interested in financing long-term infrastructure projects in India, he added, “The aim of macrostabilisation is to make the exchange rate less of an issue for investors. If inflation stays at four 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 for infrastructure projects, the exchange rate at the end of the project will be a second-order concern.”
Rajan was speaking at the Singapore Symposium 2016 and discussing opportunities for more global connectivity in capital and trade with Tharman Shanmugaratnam, Deputy Prime Minister, Singapore.
Talking about the US Federal Reserve eventually normalising its near-zero interest rates, he 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.”
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.