New Delhi: A week after RBI Governor spurned government call to cut interest rates, a top finance ministry official Tuesday said high interest rates and restrictions on rupee depreciation were hurting Indian economy.
In the run-up to the August 4 bi-monthly monetary policy, the government had vociferously made a case for further lowering of interest rates. But RBI Governor Raghuram Rajan maintain status quo because of inflationary concerns.
"High interest rate is hurting us," the finance ministry official said, requesting not to be quoted.
The government, he said, was keen on brining down cost of borrowing to boost investment and growth.
"My view is that we are wrong in not lowering the interest rate and we are wrong in not letting the rupee to depreciate. China is devaluating yuan to boost their exports," he said.
"Rupee appreciation against major currencies is not good for India," the source said.
Faced with exports shrinking 8.3 percent in dollar terms in July, China devalued yuan by record 1.9 percent to 6.23 per dollar, its lowest point in almost three years.
The move led to rupee falling the most in two weeks. It dropped 0.4 percent to 64.12 a dollar as of this morning.
Separately, commenting on the move, Finance Secretary Rajiv Mehrishi said China seems to be moving towards flexible exchange rate.
"In my opinion it should have some impact on our exports. Exports from China would be cheaper," he said. "It may also have impact on FDI if China become more attractive destination vis-a-vis India."
Stating that it was difficult to quantify the impact of depreciation, he said Indian rupee was stronger than most of the other currencies.
"Investors would go there where with the exchange rate he will get more kick for his dollar. So we have to see the impact," he said.
Prior to the August 4 monetary policy announcement, the finance ministry had stated that wholesale inflation (WPI) is in negative territory since November and international oil prices, the biggest dampener on domestic commodity prices, are at multi-year lows, giving comfort to developing economies like India.
