Volatility not rating key for FX intervention: RBI deputy guv

The RBI is looking closely at volatility, not ratings for any intervention decisions, reiterated Deputy Governor KC Chakrabarty.

“Our currency intervention depends on the volatility in the market, and not based on ratings. Because of ratings there is volatility and if there is need for intervention, RBI will intervene,” he told reporters in Hyderabad today.

“India’s financial system is strong, that is our internal assessment, but the financial stability report of RBI comes in June. You’ll see what is the position,” he added.

As of now there is nothing to worry but we are examining. If something happens we will let you know," he said when asked to comment on the global rating agency’s warning of downgrading.

The Central Bank official said RBI’s financial stability report in June would give the correct picture.

“We see symptoms but it is a market sensitive information. I can’t give it. I have to first report to Financial Stability and Development Council (FSDC),” he said in response to a question. He said the development should not impact the economy or external borrowings.

“People don’t know what is coming in the rating. It means market already discounted that,” he said, declining to comment further on the S&P report without studying it.

He said the government was already under pressure and was trying to contain deficit. “If the government is unable to do it there are many compulsions.” Asked if the cost of external borrowings would go up with the rating, he said normally cost goes up whenever the rating goes down. He, however, pointed out that the market has already discounted that rating will be downgraded.

“All our risks are internal. We are responsible. We are not working hard,” he remarked when asked if the risks to Indian economy are external or internal. “People need to work hard.”

The RBI deputy governor said there can’t be high growth without low inflation. “High inflation is always inimical to growth. This tussle between inflation and growth will continue anywhere in the world.”

On interest rate cut, he said RBI governor D. Subbarao had already stated that the probability of a future rate cut was small but not impossible.

Agencies