The Reserve Bank of India's (RBI) new Governor Raghuram Rajan, immediately after the monetary policy review meet during which repo rate hike was announced (short-term lending rate raised by 0.25 per cent to 7.5 per cent), in a press conference said the difference between the marginal standing facility (MSF) and the key repo rate will be brought down to 100 basis points over time.
The repo rate should be consistent with inflationary conditions, Raghuram Rajan said.
Raghuram Rajan surprised markets in his maiden monetary policy review meet, earlier on Friday by raising interest rates to ward off rising inflation while scaling back some emergency measures put in place to support the ailing Indian rupee.
RBI chief says India can fund current account deficit (CAD) without running down reserves
Raghuram Rajan said that he was confident that the current account deficit (CAD) could be financed this year without suffering a substantial drawdown in foreign exchange reserves.
India needs to withdraw liquidity measures, introduced in July to stabilise the rupee, as soon as market conditions allow, Raghuram Rajan said.
Rajan surprised markets by raising interest rates to ward off rising inflation while scaling back some emergency measures put in place to support the ailing rupee.
India's foreign exchange reserves fell to $274.806 billion as of Sept. 6, compared with $275.49 billion in the earlier week.
India's record-high current account deficit has made it especially vulnerable to the flight of funds.
India to allow more freedom to market participants as rupee stabilises
Raghuram Rajan said RBI would allow more freedom to market participants engaged in foreign exchange trading as the rupee stabilises.
Reserve Bank of India (RBI) had earlier in day relaxed intraday foreign exchange trading position restrictions that it imposed on some banks back in June.
Governor Raghuram Rajan said he does not anticipate a new set of rupee stabilising measures since the U.S. Fed had decided to postpone tapering its bond buying program.
Raghuram Rajan said capital flows into the country cannot be directly linked to the prevailing repo rate.
Raghuram Rajan surprised markets in his maiden policy review earlier on Friday by raising interest rates to ward off rising inflation while scaling back some emergency measures put in place to support the rupee, which hit record lows in late August.