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The Indian rupee will stay stable and any weakness must be welcomed as it improves India’s external competitiveness, according to Sajjid Chinoy, India Chief Economist at JPMorgan.
The current policy action by the Reserve Bank of India is the right one, as it must be based on a broad trade-weighted real effective interest rate, he told NDTV Profit’s Niraj Shah, at JPMorgan’s India Investors Summit.
“When we want exports to grow and not be flooded by Chinese imports, the last thing we want is a stronger currency.”
A strong currency is not at the interest of India’s growth, Chinoy said. “The RBI has been ensuring that the broad trader weighted exchange real rate has been flat or stable in the last five-six years.”
The central bank can either control price or quantity. “RBI focuses on price and that is the right focus.”
With this, India could deviate from the Fed and the reason the interest rate differential has come down is because of the war chest of reserves. “This gives the RBI those degree of freedom to not follow the Fed.”