MUMBAI: India’s rupee strengthened and stocks jumped yesterday after new central bank Governor Raghuram Rajan outlined a reform plan aimed at boosting investor confidence and stabilising the ailing currency.
The rupee climbed to 65.75 against the dollar, gaining nearly two percent from its previous close, on investor hopes the worst could be over for the currency, the worst performing in Asia this year.
Indian shares jumped as much as 2.96 percent at the open, led by banking stocks, after Rajan took over on Wednesday from Duvvuri Subbarao as head of the Reserve Bank of India (RBI). In the afternoon stocks were up 1.51 percent.
Rajan sought to reassure rattled markets with his first speech in the post, outlining a fresh approach to the currency crisis and warning that he may have to take unpopular steps to get Asia’s third largest economy back on track.
Rajan, a former IMF chief economist, emphasised the importance of transparency and consistency in the bank’s actions, after the RBI spent weeks trying to stabilise the rupee with a range of measures. He stressed he would hew to the RBI’s mandate of “securing monetary stability” and sustaining confidence in the value of the country’s money.
“This means low and stable expectations of inflation, whether that inflation stems from domestic sources or from changes in the value of the currency, from supply constraints or demand pressures,” he said. Some analysts fear the economy could be heading for a meltdown with the rupee down around 22 percent against the dollar this year.
Rajan’s bold entry to the job, which included financial deregulatory measures such as opening up the country’s banking sector, received rave reviews from economists and the local media. “This was easily the most substantive speech by a Reserve Bank governor on his first day in office,” financial daily Business Standard said yesterday. AFP
