RBI Governor Raghuram Rajan says not in favour of devaluing exchange rate

THIRUVANANTHAPURAM: Reserve Bank Governor Raghuram Rajan today said neither RBI nor the government intends to "undervalue" the rupee to pursue growth unlike countries such as China and Japan because it leads to a lot of problems over time.

Inaugurating the 4th edition of MSME summit here, he said undervaluation of the domestic currency's exchange rate is "not the intent of RBI and Government of India".

Some people point out that the growth of countries like China, Japan and Korea was due to undervaluation of exchange rate and they also want India to follow the same path.

He said however that there are a lot of problems with undervaluation over time, which is reflected in the situations that some of the countries find themselves today.

Pointing out that sustained undervaluation for a long period of time "was not a feasible or desirable strategy for growth", he said this was why he "firmly believes that RBI's philosophy of not focusing on the level of exchange rate.... trying to manipulate up or down...but trying instead to minimise situation of extreme volatility".

He added: "So, rate will not be a source of competitive advantage or disadvantage. We want to make reasonable, predictable, reasonably stable and let the advantage (for growth) come from capabilities of MSME's from cost effectiveness, innovations and ideas, rather than some kind of exchange rate valuation".: Reserve Bank of India Governor Raghuram Rajan said on Monday he was not in favour of devaluing exchange rates to boost economic growth, signalling India will not join other countries such as China or Japan in pushing down their currencies.

"I personally feel sustained devaluation is neither feasible nor a good strategy," Rajan said in a speech at a conference on medium scale enterprises in Trivandrum.

"This (devaluation) is not the intent of RBI."

But Rajan reiterated the central bank would strive to curb excessive volatility.

The rupee has been one of the worst performers in Asia this year, falling by nearly 3 per cent after strong foreign investment outflows from equity markets.