Re falling due to strong Greenback: Rajan

Davos: Attributing the fall in Indian rupee solely to the US dollar getting stronger, former Reserve Bank Governor Raghuram Rajan said any intervention by the RBI on this can end up harming Indian exports even as he urged policymakers to focus on creating more jobs and boosting household consumption. Asked what the second term of US President Donald Trump means for the global and Indian economy, Rajan said: “I think it means uncertainty. President Trump during his campaign laid out a bunch of policies and measures that he wants to implement.We are seeing some of them being implemented. We have to see how intensely, for example the policy on immigration and trade and tariff proposals against whom and against which sectors are implemented. As of now what and how all this will pan out,” the eminent economist said.

On appreciation in the US dollar and its impact on other currencies especially in emerging markets including rupee, Rajan said the dollar has been appreciating against other currencies, partly due to fear of Trump tariffs.

“If he imposes tariffs, it is going to decrease US imports from other countries, narrowing the current account deficit and the trade deficit. So, from that perspective, it means that the US needs to import less and so dollar will strengthen because there would be fewer dollars in the rest of the world. So, that is the straight forward reason,” the former IMF chief economist said.

“There is also a view that the US is becoming more attractive as an investment venue because the people who can’t export to the US will move their production to the US. Also, you are seeing more capital flowing into the US and that is also leading to a stock market boom and also strengthening the dollar,” he said. All these reasons, along with the US economy growing very strongly, are leading to a stronger dollar, he added.