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India's growth would accelerate from the previous quarter's pace and the country has the foreign-exchange reserves to finance its external debt, Reserve Bank of India Governor Raghuram Rajan said on Friday.
Exports are stronger, agricultural production is improving, and the nation is tackling medium-run challenges such as poor infrastructure and a "distorted" regulatory regime, Rajan said in a speech.
While inflation remains high, he said, India may be past the slowdown in growth, which cooled to 4.4 per cent last quarter from a year earlier, the least since the three months ended March 2009. "This is somewhere near the low we will approach," Rajan said in the speech at Johns Hopkins University's School of Advanced International Studies. Growth "should be better from now on," though it is still "a long way from our potential," he said. Economic growth will slow to four per cent in the 12 months ending March 2014, HSBC Holdings Plc predicts. That would be the weakest pace in more than a decade. Consumer-price inflation has averaged 10 percent in the past year.
High inflation, low growth and a high fiscal deficit are the "macro-economic imbalances" that have to be addressed, Rajan said today. The central bank and the finance ministry are both focused on boosting growth and curbing inflation, though they may prioritise those two targets differently, Rajan said.
India's growth could reach "double-digits" once it takes care of underlying challenges such as poor infrastructure, inadequate human capital and over-regulation, he said.
Inflation Fight
The former International Monetary Fund chief economist has raised the benchmark repurchase rate to fight inflation since becoming governor last month, acting even as the economy slows.
He raised the repurchase rate to 7.5 percent on September. 20 from 7.25 per cent, pledging to cool price pressures in Asia's third- largest economy.
Rajan this week further relaxed emergency liquidity curbs imposed on the banking system in July to support the rupee after his efforts to attract dollar inflows boosted the currency.
The rupee gained 0.9 percent to 61.36 per dollar at the close in Mumbai. The S&P BSE Sensex index of stocks added 0.1 percent to 20,272.91, the highest close since Sept. 19. The currency has rebounded 11 percent from a record low on August 28, after Rajan offered concessional swaps for banks' foreign-currency deposits and borrowings to encourage them to raise dollars.
Rupee Stability
The initiative has attracted about $5.6 billion so far, Rajan said October 4. The swap windows will boost RBI reserves by about $10 billion, a step toward recouping the currency holdings needed for rupee stability, according to Bank of America Merrill Lynch. Rajan cut the marginal standing facility rate to nine percent from 9.5 percent on October 7, easing the cash squeeze with the second MSF reduction in less than a month. He's previously said he plans a measured roll back of the liquidity curbs.
