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The rupee will continue to remain around its current levels, C. Rangarajan, Chairman, Prime Minister’s Economic Advisory Council, said on Saturday.
Capital inflows, which are likely to pick up in the second half of the current fiscal, will prevent the rupee from depreciating further, he said.
The rupee has been trading at around 55 against the US dollar. The Indian currency slipped to a two-month low on Friday to close at 55.52 against the dollar.
“I expect exchange rates to remain around these levels moving forward as the current account deficit will come down, aided by capital inflows by the end of this year,” Rangarajan said at an interactive session organised by the MCC Chamber of Commerce and Industry here on Saturday .
Current Account deficit
India’s current account deficit should come down to around 3.5 per cent of the gross domestic product (GDP) by the end of this fiscal, aided by factors such as lower gold imports, better capital inflows and no major increase in oil prices, he said.
Efforts were also on to keep the current account deficit around the manageable level of 2.5 per cent of the GDP in the medium term.
Containing inflation
The Union Government will use all policy instruments, including managing the food grain market, and fiscal and monetary measures to tame inflation, he said.
The rate of inflation, as measured by the Wholesale Price Index (WPI), was 7.81 per cent in September. In October last year, it stood at 9.87 per cent.
It was essential to bring down current inflation and re-anchor inflationary expectations to the 5 per cent comfort zone, he added.
According to Rangarajan, food subsidy was of ‘paramount’ importance for countries like India. However, tough policy actions were needed to prune inflation on other fronts, he said.
“The fact that inflation is triggered primarily by supply-side shocks does not mean that monetary policy and fiscal policy have no role to play. There is an imperative need to contain expenditures, more particularly subsidies, which need to be pruned, well-focused and prioritised. This calls for policy actions that may not be popular,” he pointed out.
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