Raghuram Rajan, 50, a University of Chicago professor and former IMF chief economist who took over Wednesday as governor of the Reserve Bank of India, provided much-needed reassurance by announcing a number of measures to support to the plunging Indian currency. He expressed confidence in the Indian economy, despite its current crisis brought on by decade-low growth, stubborn inflation and high fiscal and current account deficits.
Both the 30-stock Sensex and the broader Nifty stock indexes, which had closed sharply higher Wednesday, maintained their momentum Thursday.
The Sensex was trading at 18,958, up 391 points or 2.1 percent toward the day's close, and the Nifty was ahead 138 points, or 2.53 percent to 5,586 points. Their intraday gains were much higher.
The Indian rupee was heading to a close of just over 66 to a U.S. dollar after jumping as much as 65.5 to the greenback during the day. It had hit a record low of 68.85 on Aug. 28.
The Indian currency, lately among the worst performing currencies in the world, has lost 20 percent of its value this year. India's once-highly touted economic growth rate plunged to a decade low of 5 percent last year.
In his first speech after becoming the central bank head, Rajan, who comes to his new job after being the economic adviser to the Indian prime minister, said the primary role of the bank is monetary stability that will sustain confidence in the value of the rupee.
"Ultimately, this means low and stable expectations of inflation, whether that inflation stems from domestic sources or from changes in the value of the currency, from supply constraints or demand pressures," Rajan said.
In other measures, he said the Indian public would benefit from "more competition between banks, and banks would benefit from more freedom in decision making." He said the RBI would soon take steps to completely free bank branching for India's public sector commercial banks "in every part of the country."
Rajan also said together with the government and regulators, the bank will "steadily but surely liberalize our markets" as well as ease restrictions on investment and position taking.
The steps would include increasing exporters' limits for hedging forward currency exchange contracts to 50 percent from the current 25 percent of the value of canceled contracts. A similar facility would also be extended to importers, who are currently without it.
He said the RBI also would look at introduction of interest rate futures on overnight interest rates and the internationalization of the rupee.
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