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Rupee Will Not Go Into Free Fall, Says Former RBI Governor Raghuram Rajan

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| September 11 , 2018 , 13:06 IST

As the Indian rupee is getting weak with a 13 per cent decline in value so far in 2018, Former Reserve Bank of India governor Raghuram Rajan who hoped on Monday that the Indian rupee will not go in for a free fall as the central bank raising Interest rates to control inflation.

In an interview with CNBC TV18, Rajan said, “It is very important that RBI continues to signal as it has done so far on its concern about keeping inflation on track, about raising interest rate whenever appropriate, to fulfil its inflation objective that gives investors confidence that rupee is not going to go in for free fall because ultimately inflation will be in control.”

Also Read: Former RBI Governor Raghuram Rajan Lauds Modi's Fiscal Strategy, Suggests To Focus On CAD & MSMEs

On Tuesday the Indian rupee was at Rs 72.34 against the US dollar on growing fears of contagion from an emerging-market rout and escalation of a global trade war.

With a sharp 94 paise decline in value, the Indian rupee hit a historic low of 72.67 in mid-morning trade, triggering the central bank intervention to defend the currency.

It is a phenomenon that if RBI reduces the Interest rates then more people are able to borrow money that results in consumers have more money to spend, causing the economy to grow and inflation to increase.

On the other hand, if RBI hikes the interest rates then more people tend to save as returns from saving are higher. 

The RBI has a number of instruments to support the Indian rupee as it can intervene in the foreign exchange markets by selling dollars. The central bank has more than $400 billion in reserves at its disposal.

The continuous rupee fall has resulted in expensive imports, and overseas education and foreign travel.