'RBI doing everything it can to stabilise exchange rate'

Kochi: With the rupee continuing with its free fall, RBI on Friday said it was doing everything it can to stabilise the exchange rate to reduce volatility of the currency.

"... That has been our approach from the time this (depreciation) started and we will continue it," RBI Deputy Governor Subir Gokarn told reporters here on the sidelines of a function.

He, however, declined to make any projections, saying "there are both the global and domestic factors driving it and the rupee will move according to pressure of these two factors."

On what steps RBI would take to stimulate growth, which has slid to a nine-year low of 5.3 per cent in January-March quarter, Gokarn said to the extent the growth slowdown was the result of interest rate hike in the last couple of years, the central bank can reverse the cycle.

He noted that RBI had set the process in motion in April, when it slashed the interest rates. "But to the extent the growth slowdown is due to other factors which are being discussed in public debate those factors have to be addressed by actions from other policy making steps," he said.

On RBI's contingency plans, he said it was in constant state of internal discussions and assessment on the steps to be taken. "We are aware of potential risks and we are certainly taking on what we need to do and the system as a whole needs to do," Gokarn said.

Asked about the impact of a likely hike in diesel price, he said even though there would be a numerical impact on inflation at the current growth rate, the risk of its spreading and generating sustainable inflation at this point in cycle was relatively low.

"But we also have to keep in mind any reduction in fiscal deficit is going to be anti-inflationary because if people are spending more for fuel they have less money for spending on other things. So these two affects are counter acting."

He emphasised that ultimately increase in prices was going to be positive as it will actually control deficit and not pose that much an inflationary risk in current situation.

Earlier, addressing the AGM of Cochin Chamber of Commerce and Industry, he said while growth was slowing, core inflation was also moderating.

Food inflation was likely to be persistent, he said adding fiscal consolidation was critical and controlling subsidies was the key. Liquidity was returning to normal. Assets quality was a concern, but not a threat, he said.