Subbarao says policy not to resort to capital controls

Mumbai: The Reserve Bank of India’s outgoing Governor Duvvuri Subbarao on Thursday emphasised the central bank’s policy is not to resort to capital controls but said it must maintain its focus on stabilising markets.

“I must reiterate here that it is not the policy of the Reserve Bank to resort to capital controls or reverse the direction of capital account liberalisation,” Subbarao said in his last public speech as RBI governor.[caption id=“attachment_1070477” align=“alignleft” width=“380”]  RBI Governor Duvvuri Subbarao. Reuters [/caption]

“Notably, the measures that we took did not restrict inflows or outflows by non-residents.”

The RBI governor added the root cause of the rupee’s falls had been the country’s unsustainable current account deficit, which he said ultimately required structural solutions from the government.

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Until such solutions can be undertaken, Subbarao said the RBI would need to maintain its policy of stabilising markets.

“Reducing the CAD requires structural solutions - RBI has very little policy space or instruments to deliver the needed structural solution. They fall within the ambit of the government,” Subbarao said.

“Structural adjustment will also take time. In the interim, we need to stabilize the market volatility, a task that falls within the domain of the Reserve Bank.”

Subbarao’s comments come after the RBI has unveiled a slew of controversial measures to support the plunging rupee by draining cash and curbing speculative trading, and curbing capital outflows from residents.

In its latest action, the central bank on Wednesday said it would provide dollars directly to state-run oil companies.

The rupee recovered on Thursday after a day earlier hitting a record low of 68.85 to the dollar.

Reuters