India ‘must not hurt growth in rupee defense’

MUMBAI: India must ensure its moves to stabilize the rupee do not stifle growth, Chief Economic Adviser to the finance ministry Raghuram Rajan said.
Over the last two weeks, the RBI has lifted short-term rates to support the currency, but that has made it harder for lenders to access funds.
“But, of course we have to be careful that the stability does not come with a serious consequence to growth,” Rajan said through a webcast at an event.
The rupee strengthened to 58.69 to the dollar after the RBI first unveiled its measures on July 15, but has not closed below 59 since then and remains within sight of a record low of 61.21 hit earlier this month.
The RBI’s liquidity draining measures are widely expected to hurt India’s growth, which languished at a decade-low of 5 percent in the 2012/13 financial year.
Following the RBI’s measures, many economists have cut their forecast for India’s growth, such as investment bank Macquarie, which slashed its forecast for 2013/14 to 5.3 percent from 6.2 percent after the RBI released the first set of cash-tightening measures on July 15.
Last week, ratings agency also lowered its forecast by 50 basis points to 5.5 percent for the financial year ending March 2014.
Earlier today, in the RBI’s macro-economic review, professional forecasters outside the central bank projected growth at 5.7 percent, below 6.0 percent in the previous survey in May.