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Though stability of the rupee may be beneficial, the present level of the exchange rate is not attractive and the rupee should be allowed to depreciate, say members of the Reserve Bank of India’s panel on Monetary Policy.
Since the rupee has appreciated significantly against the euro, India’s share of exports in the Euro area may have fallen relative to South Asian countries where currencies have remained fairly stable, according to the minutes of the April 1, 2015 Meeting of the Technical Advisory Committee on Monetary Policy.
Members expressed concern over the near-term external outlook as merchandise export growth had been declining for three months in a row and vulnerability in the medium-term was arising from swings in capital inflows in both debt and equity markets.
On the policy front, though four of the seven external members recommended reduction in the policy repo rate, the Reserve Bank of India Governor did not oblige.
Of the four, two members suggested a 50 basis points cut along with forward guidance of no further decline.
Three members recommended no change in the policy repo rate. They were of the view that until the two 25 basis points cuts in the repo rate, in January and March 2015 are transmitted into lending rates, no further cut is desirable.
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