Stabilizing the rupee is India’s priority

Will preserve economic stability.

The Reserve Bank of India said the priority for monetary policy now is to restore stability in the currency market so that macro-financial conditions remain supportive of growth.

It noted that such a strategy will only work if reinforced by structural reforms to reduce the deficit and spur investment.

RBI raised two interest rates in July, restricted daily fund injections into the banking system and tightened lenders’ reserve ratios to limit rupee supply and halt the currency’s plunge.

The central bank’s measures have contributed to an appreciation of about 3% in the rupee versus the dollar since the currency sank to a record low July 8.

Analysts noted that RBI’s focus has shifted to curbing rupee volatility but that recent steps taken by the central bank may hurt growth if they stay in place for an extended period.

The rupee has depreciated 10% in the past six months, a weakening blamed on India’s record current account deficit. The prospect of reduced U.S. monetary stimulus has also hammered the rupee.

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