India should allow gradual rupee weakening, use fx reserves 'judiciously' - govt adviser

Cargo containers are seen stacked outside the container terminal of JNPT in Mumbai

By Shivangi Acharya

NEW DELHI (Reuters) -India's central bank should allow rupee to depreciate gradually and use foreign exchange reserves judiciously, the government's chief economic adviser V. Anantha Nageswaran on Monday.

Nageswaran comment on the rupee and foreign exchange reserves is the first official government comment since concerns about dwindling currency reserves emerged earlier this year.

India's foreign currency reserves have fallen from a peak of $642 billion to $531 billion partly due to dollar sales to support the rupee.

“We should in the short-run allow the rupee to depreciate gradually and we should use forex exchange reserves judiciously,” Nageswaran said at an online event.

With the economy likely to run a current account deficit of close to 3% of gross domestic product in the current financial year, analysts expect reserves to fall further.

“We should augment foreign exchange reserves and that will help with any contingencies,” he added.

He said the country currently had adequate reserves to deal with capital outflows.

Financing India's trade deficit would be the main challenge for the year even as there are signs of broader economic recovery, Nageswaran said.

He said he expected growth to moderate to around 6.5% to 7% in the current fiscal year that started on April 1. The government in January had projected economic growth of 8% to 8.5% for the current fiscal year but since then most agencies including the Reserve Bank of India have cut their annual growth estimateS to around 7%.

Nageswaran also said some central banks, including the Bank of Canada, European Central Bank, and the Reserve Bank of Australia, had indicated a less aggressive monetary policy that would help emerging nations.

(Reporting by Shivangi Acharya; Editing by Alex Richardson and Tomasz Janowski)