The Reserve Bank can only take “calibrated measures” to support the rupee, but cannot stem the currency’s fall if it is caused by fundamental or global factors, deputy governor KC Chakrabarty said on Friday, a day after the currency hit a record low.
Global risk-aversion caused by the euro zone crisis, combined with India’s slowing economic growth and widening deficits, have exposed its vulnerabilities and piled pressure on the semi-convertible rupee.
“If the rupee’s fall is because of fundamental weakness or (due to) the global situation ..., we cannot arrest it,” Chakrabarty told reporters on the sidelines of a banking event here.
He said the bank was monitoring the rupee’s falls and would take measures as needed, but “in a calibrated manner.”
The rupee fell to a lifetime low of 56.52 to the dollar in intra-day trading on Thursday, down 13.3% from its 2012 high in early February, making it the worst performing currency in Asia so far this year.
India’s trade deficit stood at $13.5 billion in April, while economic growth in January-March slumped to its weakest in nine years to 5.3%. The Centre’s inability to push reforms or take hard decisions to cut subsidies have added to the gloom.
Doubts about India's ability to fix its finances have also weighed heavily on the rupee, as investors worry the government will overshoot its deficit target of 5.1 percent of gross domestic product for the fiscal year ending next March.
{{/usCountry}}Doubts about India's ability to fix its finances have also weighed heavily on the rupee, as investors worry the government will overshoot its deficit target of 5.1 percent of gross domestic product for the fiscal year ending next March.
{{/usCountry}}As a measure to contain dollar demand and help support the rupee, Chakrabarty also hinted at opening a separate window for oil companies.
“He (RBI governor D Subbarao) said the option is open. Whether they are doing or not I don’t know, because it will not be done in the public view even if it is done,” Chakrabarty said, referring to dollar sales by the RBI to oil companies.