With the rupee dipping to an unprecedented low level, the government is ready to take step to curb volatility, chief economic advisor to the finance ministry Raghuram Rajan said today.
The government is not short of options to tackle the fall of the rupee and will take actions as necessary, he told reporters shortly after the rupee fell to a record low.
The rupee today weakened to an unprecedented 59.9275 per dollar, past the previous all-time low of 58.9850 touched on June 11. Rajan also said the Reserve Bank of India would take action to support the rupee as appropriate. "We are not short of actions or instruments as and when need arises," he said. "We will be alert to development, we do not like volatility and will take actions when necessary."
The rupee, he said, was not in shambles and "we should not be overtly pessimistic". Rajan said the Current Account Deficit (CAD) was "large, but we are on way to tampering it.
Gold imports are coming off its peak." CAD in June will be better than in May, he added. Earlier, Finance Minister P Chidambaram held a meeting with his ministry officials about the rupee fall, which came a day after US Federal Reserve Chairman Ben Bernanke confirmed the Fed would begin winding down its stimulus spending later this year.
Rajan said "curbs or blanket bans are harmful because they hurt the economy. We have to take measured actions rather than knee-jerk reactions ... We are not going to take actions that impinge the medium-term prospects for India". Rajan further said steps would be taken to liberalise and further strengthen the capital markets. "We will be alert to developments and take actions as necessary, but we will not let it detract us from the longer term goal of putting economic recovery on firm and solid ground," he said.
Currencies of all emerging market economies are depreciating, Rajan said adding "there is nothing particularly wrong with the rupee right now ... I believe over time matters will stabilise". He further said the CAD would be better in June than in May. The CAD, which is the difference between the outflow and inflow of foreign currency, is estimated to be around 5% of the GDP in 2012-13 fiscal.
The CAD had touched a record high of 6.7% in the October-December quarter. Trade deficit widened to $20.1 billion in May from $17.8 billion a month ago. Gold and silver imports rose nearly 90% to $8.4 billion in May. Cumulatively, in April-May the import of precious metals stood at $15.88 billion. The government has hiked import duty on gold three times since 2012 including the recent hike by 2 per cent to 8% to curb demand. Besides, the RBI too has put restrictions on banks on importing gold. Huge gold imports have put pressure on the country's CAD, which in turn is affecting the value of rupee.