‘Yuan devaluation creates doubts on China’s real economic might’
BY PTI21 Aug 2015 10:53 PM GMT
PTI21 Aug 2015 10:53 PM GMT
Terming devaluation of currencies as a “worrisome trend”, RBI Governor Raghuram Rajan on Thursday said China’s move to devalue its currency and to protect its stock markets raise questions about the ‘true strength’ of the world’s second largest economy.
“I think more generally across the globe, because of a weak demand, we’ve seen significant efforts to depreciate <g data-gr-id="22" style="color: #3b3b3b; font-size: 11px;">currency</g>, you can call it monetary policy or direct exchange rate intervention. That’s a worrisome trend. “The Chinese move raised some questions about the true strength of its economy also,” Rajan said, speaking at the second SBI Banking and Economics Conclave.
He added that China has moved on various fronts beyond the currency, including protecting its stock markets. Moves like these, where countries devalue currencies due to low demand, can lead to a “free for all” at the global stage, said Rajan, who is known for his frank views on the global economy. Rajan, who is credited to have seen the global financial crisis of 2007-08 coming, said that rupee has been among the more stable currencies the world over, although it has also depreciated a bit.
“We have also seen certain sectors where a strong currency has hurt us,” he <g data-gr-id="20" style="color: #3b3b3b; font-size: 11px;">said,</g> while citing the example of cement sector where production has fallen despite a high domestic demand. Rajan pointed out that the dip is due to the slowdown in exports as there is slower demand overseas. On the way ahead, Rajan said, “We do not have much to worry if the level of Chinese currency depreciation stays at current level, but more such moves can result in troubles including “tit for tat” actions by other nations.
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