Washington, Aug 29
India's apex bank has
cautioned its US counterpart on going ahead with a rate hike, especially
at a time when world economic growth is stalling which has led to
massive volatility in currency, equity and commodity markets.
Caution
regarding a hike during the upcoming US Federal Reserves (US Fed) rate
decision was conveyed by the Reserve Bank of India (RBI) Governor
Raghuram Rajan in an interview with CNBC at Jackson Hole, Wyoming.
"My
position over time has been don't do it when the world is in turmoil.
It's a long anticipated event, it has to happen sometime - everybody
knows it has to happen - but pick your time," Rajan said during the
interview aired on the channel's "Closing Bell" show.
Rajan is in
the US to attend the global central bank chiefs' meet at Jackson Hole, a
ski resort located along the border of Wyoming and Idaho for the
Federal Reserves' annual retreat.
Rajan's comments come at a time
when investors are spooked by a slowdown in China, massive devaluation
in emerging markets' currencies and growing chances of the US Fed going
in for a rate hike.
The US Fed is expected to announce its
decision to hike interest rates after a decade or so of easy monetary
regime with interest rates pegged at near zero levels during its policy
meet scheduled on September 16-17.
The Indian markets are worried
that the recent positive data points from the US has heightened chances
of a US rate hike in September.
High interest rates in the US
are expected to lead away the foreign portfolio investors (FPIs) from
emerging markets like India. It is also expected to dent business
margins as access to capital from the US will become expensive.
At
the same time, Rajan showed great worry over a Chinese slowdown which
has the potential to send the world economy back into a recession, start
currency wars and dampen capital markets. Notwithstanding the
possibility of a Chinese slowdown, he was quick to point out that India
was relatively well placed due to its strong macro economic conditions.
"If
in fact there is a greater Chinese slowdown than is anticipated, it
won't affect us as much as other countries around the world," he said.
"Of course, everybody would like stronger Chinese growth, but to some extent we are among the least affected."
On
the question of reducing interest rates Rajan said that he is not done
with easing monetary policy, however adding that any future decision
will be data driven.
"We'll look at the data as it comes in and take a further view. We have not said we are finished," he added.
Indian
Inc has been urging the central bank to cut rates in the light of an
expanding economy which is expected to grow around 7 percent with
contained inflation, reining-in of fiscal deficit, good monsoon coupled
with a plunge in commodity prices.
After having cut the short
term lending rate thrice thus far in this calendar year to bring it down
to 7.25 percent, the RBI kept key lending rates unchanged during its
last monetary policy meet held on August 4.
RBI that time said
that further cuts can only be effected if commercial lenders pass on the
previous reductions to borrowers. RBI has so far reduced lending rates
by 75 basis points in 2015.
