A day after the Reserve Bank of India left rates unchanged, it assured that interest rate moves will be guided more by domestic factors than external ones. Speaking to analysts and researchers through a teleconference on Wednesday, RBI Governor Raghuram Rajan said the central bank does not manage liquidity through foreign exchange markets.
It is not a long term tool that RBI relies on, but is viewed as an opportunity tool that sometimes RBI uses. Rajan is open to increasing the foreign debt limits, should the existing limits fill up. He emphasized that the RBI is not looking to scrap foreign investment limits in government bonds as it would be premature to do that before the global unwinding of stimulus measures and the start of a rate hike cycle.
When asked how will Fed’s tightening impact India, the central bank governor termed it a hypothetical situation but insisted that RBI’s attempt at getting inflation credibility is a possible solution that will prevent Indian market from suffering a knee-jerk reaction to Fed moves.
The RBI kept its key policy repo rate unchanged on Tuesday, and voiced a commitment to bringing down inflation that convinced many analysts that markets will have to wait until next year for the next cut in rates.