The Reserve Bank of India (RBI) will take further measures to manage a volatile foreign exchange rate, outgoing central bank governor D Subbarao said on Thursday, even as the rupee touched a new low of 65.56 to a dollar, partly mirroring the government and the RBI’s inability to contain a free-falling currency. Chronicle of a great fall
Subbarao, who met finance minister P Chidambaram and top officials on Thursday, said the RBI does not target a specific level of the rupee, said the RBI governor, adding the current economic situation requires structural measures.
The rupee closed at 64.55/56 a dollar. The Indian rupee has been worst performing among emerging market currencies shedding more than 16% since May amid strong signs of recovery in the US that is prompting global investors to withdraw money from countries like India.
Experts have warned the rupee is fast hurtling towards a scary 70 to a dollar.
The RBI has taken a slew of measures including new foreign exchange controls restricting the amount of dollars Indian companies’ and individuals can spend overseas and banned people from buying property in foreign countries, spooking investors and drawing comparisons with a throw-back to the pre-1991 licence-raj.
Subbarao said that India’s foreign exchange reserves at $278 billion, was adequate to manage the current volatility in the currency market.
“I believe our forex reserves are adequate to manage the current situation,” he told reporters.
“Even when the governor goes to sleep there are some of our officers who keep tracking and we will respond to (developments) as may be necessary,” Subbarao said.
Separately, the RBI in its annual report released Thursday, said the relentless fall in the rupee is likely to push up inflation.
“The pass-through of the depreciation of the rupee exchange rate by about 11 percent in the four months of 2013-14 is incomplete and will put upward pressure as it continues to feed through to domestic prices,” the RBI said in its annual report for the 2012-13.
The RBI warned that managing India’s current account deficit (CAD)—the gap between dollar inflows and outflows—would be key macroeconomic challenge in the current global environment.
“Global risks coupled with domestic structual impediments have dampened prospects of a recovery in 2013-14, and posed immediate challenges for compressing the CAD,” it said.