RBI warns of risks from yuan devaluation
Mumbai, August 20
Reserve Bank of India Governor Raghuram Rajan said China’s devaluation of yuan was not a concern, but warned of dangers of ‘tit-for-tat’ actions by other countries if the move was part of a long-term competitive devaluation.
The comments come after China’s central bank this month devalued the yuan, sparking concerns that policy makers were aiming to help struggling exporters — a scenario they feared would ignite a ‘currency war’.
The Indian rupee has fallen more than two per cent against the dollar since yuan devaluation, slumping at one point to its weakest since September 2013.
The outlook on emerging Asian currencies in the past two weeks also deteriorated to its worst in years, as bearish bets on the Chinese yuan hit their largest in more than five years after the surprise devaluation, a Reuters poll showed today.
Although Rajan added he did not believe the actions from the People’s Bank of China were an indication of a long-term devaluation, he warned of the dangers.
“I think if the Chinese depreciation holds to about this level, it’s not something that one should be overly concerned about,” Rajan said. “If it’s part of a process of getting competitive advantage through ... longer term depreciation it has to be worrisome across the world, partly because you could have tit-for-tat