Rajan says ready to use FX reserves as Sensex tumbles

By Suvashree Choudhury and Karen Rebelo

MUMBAI (Reuters) - Reserve Bank of India Governor Raghuram Rajan said he was ready to deploy foreign exchange reserves to curb volatility in the currency as turmoil in global markets sent domestic shares down more than 4 percent and the rupee to its lowest since late 2013.

Still, Rajan, speaking at a previously scheduled appearance at a banking conference on Monday, added India was in a good position relative to other countries to withstand the current global markets volatility sparked by steep falls in Chinese equities.

Rajan said India's macro-economic problems were "under control," and noted that the central bank remained focused on helping economic growth by bringing down inflation.

Rajan also reiterated any rate cuts would be carried out in response to inflation and not to "public pleading." The comments came as Finance Minister Arun Jaitley is stepping up pressure on the central bank to ease monetary policy further.

"India is better placed compared to other countries with low current account deficit, and fiscal deficit discipline, moderate inflation, low short term foreign currency liabilities, very sizeable base of forex reserves," Rajan said.

"We will have no hesitation in using our reserves when appropriate to reduce volatility in the rupee."

Rajan's comments come as the benchmark BSE Sensex tumbled as much as 4.2 percent to its lowest since October 2014, while the rupee fell to as low as 66.52 per dollar, its weakest since September 2013.

Analysts believe India's markets will remain relatively more insulated than other countries.

India has steadily built up its FX reserves to a record high of more than $355 billion since Rajan took the helm of the RBI in September 2013, when the rupee was in the midst of its worst crisis in more than two decades.

But a slowdown in India's annual consumer price inflation to 3.78 percent in July, its lowest level on record, has sparked increased calls for the RBI to cut rates further to help boost an economic growth rate widely seen as middling.

Yet after bringing down the repo rate by three-quarters of a percentage point to 7.25 percent so far this year, the RBI kept its policy rate on hold at its last review earlier this month as it sought more clarity on inflation.

"Rate cuts should not be seen as goodies that the RBI gives out stingily after much public pleading," Rajan said.

"Instead, what is important is sustained low inflation," he added. "And rate cuts are a natural consequence that the RBI has no hesitancy in delivering."

(Additional reporting by Swati Bhat and Himank Sharma; Writing by Rafael Nam; Editing by Shri Navaratnam)