The deputy governor of India's central bank said the equation between growth and inflation in the country has become much more balanced in the last few months and indicated that interest rates were unlikely to rise further, though he stopped short of saying whether the next move would be a rate cut.
"Growth risks obviously have come back into a much larger consideration based on what we've seen in the past few months," Subir Gokarn, the Deputy Governor of the Reserve Bank of India, told CNBC's Oriel Morrison on Thursday, adding that monetary policy had "reached the peak of the cycle."
Gokarn also said the central bank would intervene in the forex market to reduce volatility in the exchange rate, rather than to defend a particular rate. According to Reuters, the central bank had been intervening indirectly via state-owned banks in recent weeks, with traders telling the news service, the RBI was protecting the rupee at the 53.40-53.50 range.
Gokarn said the rupee had stabilized in recent weeks and said it was trading much closer to the real effective exchange rate against a basket of currencies tracked by the central bank. The rupee fell 16 percent against the dollar in 2011 as foreign investors pulled money out of the country, making it Asia's worst performing major currency.
Gokarn said what happened next to the exchange rate depended on whether capital flows into the country were revived. India runs a current account deficit and depends on foreign investment flows to cover the shortfall. Gokarn said investor confidence would be revived if the fiscal deficit and the country's infrastructure problems were addressed.