Under Rajan, RBI to focus on currency; rupee to hit 69 : Reuters Poll

Reuters  |  Bangalore  August 27, 2013 Last Updated at 00:44 IST

Indian economy is caught in a quagmire of slow growth, high inflation, rickety government finances and a tumbling currency

Incoming Reserve Bank of India Governor Raghuram Rajan would prioritise currency stability over inflation and growth, according to a Reuters poll, which also showed the worst was not over for the rupee.

The rupee has lost about 15 per cent to the dollar, hitting record lows almost daily, since the US Federal Reserve hinted in May it would soon begin paring back its massive economic stimulus programme, sparking an investor exodus from emerging markets seen as the most exposed to foreign funding.

Rajan, a widely acclaimed economist, takes over as governor of RBIfrom incumbent Duvvuri Subbarao on September 5, at a time when the Indian economy is facing its worst crisis since 1990-1991.

 Eleven of 17 economists polled by Reuters said the currency will be the top priority for Rajan but the consensus showed it would likely weaken to 69 a dollar before rising, implying a further seven per cent fall from Monday's spot rate of 64.10.

Most expected it to bottom out in September. The Indian economy is caught in a quagmire of slow growth, high inflation, rickety government finances and a tumbling currency that is among the worst performing in emerging markets. 

"Rajan could streamline RBI's focus to stabilising the currency and inflation while being supportive of growth," said Nizam Idris, head of FX strategy at Macquarie Bank in Singapore.

 "The RBI must realise it cannot control the rupee, rates, capital flows and inflation all at the same time."