MUMBAI/NEW DELHI (Reuters) - India’s policymakers tried to soothe jittery investors on Monday after domestic shares slid nearly 6 percent and the rupee sank to its lowest since late 2013 following a China-led sell-off across Asia.
Central bank governor Raghuram Rajan told a banking conference Asia’s third-largest economy was in a good position relative to other countries to withstand the current global markets volatility.
“India is better placed compared to other countries with low current account deficit, and fiscal deficit discipline, moderate inflation, low short-term foreign currency liabilities, very sizeable base of forex reserves,” he said.
“We will have no hesitation in using our reserves when appropriate to reduce volatility in the rupee.”
The rupee fell to as low as 66.74 per dollar on Monday, its lowest since September 2013, as Asian markets reeled under fears of a China-led global economic slowdown.
The 30-share Sensex dropped 5.94 percent, its biggest daily percentage fall since Jan. 7, 2009. The index fell to as low as 25,624.72 points at one point, its lowest intraday level since Aug. 11, 2014.
Finance Minister Arun Jaitley also downplayed the sell-off, calling it “transient and temporary in nature”.
“The factors responsible for this are entirely external,” he said in New Delhi. “There is not a single domestic factor in India which has either contributed to it or added to it.”
Analysts believe India’s markets will remain relatively more insulated than other countries.
India has steadily built up its FX reserves to a record high of more than $355 billion since Rajan took the helm of the RBI in September 2013, when the rupee was in the midst of its worst crisis in more than two decades.
Jaitley emphasised the need to strengthen the domestic economy so that even amid a global slowdown, India will be among one of the fastest-growing economies in the world.
Deficient summer rainfall as well as listless corporate earnings have raised worries that growth could come in below Jaitley’s 8 to 8.5 percent for the year to March. Moody’s last week lowered its growth forecast to 7 percent, from 7.5 percent.
A record cooling in retail inflation in July as well as China’s decision to devalue the yuan have bolstered calls for the RBI to cut rates further to juice up growth.
But on Monday, Rajan reiterated his focus on bringing down inflation, saying any rate cuts would be carried out in response to inflation and not to “public pleading.”
“Rate cuts should not be seen as goodies that the RBI gives out stingily after much public pleading,” Rajan said.
Additional reporting by Karen Rebelo, Swati Bhat and Himank Sharma; Editing by Jacqueline Wong