'Economy can withstand China ripple effects'

A day after the biggest-ever plunge in markets, Reserve Bank of India Deputy Governor S S Mundra sought to allay fears saying the problems are transient, driven by interconnectedness of the world economies and that India is capable of dealing with any kind of external shocks.

"From the view point of where we were two years ago and where we are today, whether it is the level of our foreign exchange reserves or the current account deficit position, and going forward how commodities pricing situation is looking at, I would believe that in medium to long-term, we are on the right path," Mundra told reporters on the sidelines of the national bankers meet Fibac here.

The reform agenda taken by the government and RBI is progressing in the right direction, he said.

He further tried to assuage the market wounds saying, "We have always been telling that we are at a stage where we cannot be disconnected from the global events.

"We are an interconnected market and there would be occasions when these kinds of things will happen, but I think the solution is the right mix of the medium and long term policies."

Addressing the same event on Monday, and amid the bloodbath in stock and currency markets, RBI Governor Raghuram Rajan said the country has strong macroeconomic fundamentals and sufficient forex reserves to contain volatility while he also hinted at a rate cut if inflation remains low.

"I just want to indicate that we have plenty of reserves which was $355 billion (at the last count), plus $25 billion that exist because some of our forward sales.

“We have got $380 billion to play with," Rajan told the same event on Monday.

"I wish to reassure the markets that our macroeconomic factors are under control as the economy is in much better position relative to many other economies," Rajan had said citing the fiscal position of the Centre, better current position, lower crude and commodity prices and falling inflation as the big positives for the economy.

He even hinted at a rate cut if the prices remained under check.

Asked has RBI led the rupee to slide, Mundra said the central bank does not allow the currency to depreciate or appreciate.

"These are the overall market developments, demand-supply situation, the global events which bring this situation. It is not for RBI to do it," he said.

The central bank does not target any level of the rupee to intervene to arrest its slide or gains.

"If there is an undue volatility, the RBI would certainly be there to see it is not an unruly and undue volatility in the market," Mundra said.

Rajan on Monday said that while the rupee has been losing against the dollar, the unit has been appreciating against the euro and the yen, apart from trading almost above the real effective exchange rate against many of the leading currencies.

Photograph: Kind courtesy, Shanghai World Expo.