India is taking steady steps towards an increasingly free currency, Reserve Bank of India governor Raghuram Rajan said on Tuesday, but it will avoid a “big bang” liberalisation.
China’s accession to the International Monetary Fund’s benchmark currency basket on Monday was seen as a victory for Beijing’s campaign for recognition, and puts the yuan alongside the dollar, euro, pound and yen.
Some economists say it was also a blow for India, an economy that was at virtual parity with China in the early 1980s but is now a fraction of the size.
“We are steadily moving towards being a much more open economy, while keeping some of the concerns about stability, making sure we have things broadly under control,” Rajan said after the central bank’s monetary policy announcement on Tuesday, in response to a question on the yuan.
He detailed recent steps including moves by the central bank to allow companies to more easily raise rupee debt offshore.
“All these are in the direction to broaden and open up a little more, but at the same time it is not a big bang, where we lose control,” he said. “It is a steady process.”
Asked about the impact of the yuan’s inclusion in the IMF’s Special Drawing Rights (SDR) basket on the rupee, Rajan said there could be a further softening of the Chinese currency, but India would not shift accordingly.
“(The yuan) devalued initially but then stopped, and it has come up a little since then. Perhaps with the Chinese inclusion in the SDR basket you may see a little more of that,” he said.
India, he added, would not “manipulate” the exchange rate for the rupee to achieve macroeconomic objectives.
“We’ve said repeatedly that our intent is to minimise volatility in the exchange rate rather than target a particular level,” he said.