Rupee nears 60 against dollar, govt ready with action

Mangalore Today/DHNS

New Delhi, June 20, 2013: As the currency market witnessed a bloodbath with the rupee touching nearly 60 to a dollar on Thursday, the government said it was not running short of options to stem the slide and asserted that the market should not dictate policies.

The rupee hit an all-time low at 59.94 against the greenback but later pared some of its losses to trade at 59.76 in the afternoon trade. Dealers did not rule out the Reserve Bank of India’s (RBI) intervention.

 

“We have a range of instruments. We can call on them as and when needed. We will not flag them. The Ministry of Finance, the RBI and Sebi are watching developments closely and will take appropriate action,” Chief Economic Adviser in the Finance Ministry Raghuram Rajan told reporters in the morning.

The stock markets were also under heavy pressure after rupee touched life-time low of 59.93 against the dollar.

Sensex tumbled 526.41 points, or 2.74 per cent, to 18,719.29, recording biggest single day fall since September 2011. Across market, over 1,650 stocks fell and just 650 rose. Investor wealth worth Rs 1.5 lakh crore was eroded on Thursday.

The rupee, like every other emerging market currency, saw a quick fall in early trade on Thursday after Chairman of the US Federal Reserve (Fed) Ben Bernanke said that by the end of the year, its quantitative easing (QE) or $ 85 billion bond buying programme would start tapering if the US economy improves.

“Clearly, foreign institutional investors (FII) debt flow has been affected by the possible rise in US long term interest rates. It is not inconsequential for the US. It has affected the rupee like many other currencies. Market may be overshooting,” Rajan said.

He, however, said that India should not let itself to be led by the market into directions it does not want to follow. After the initial period of volatility as they digest the Fed statement, Rajan said. Investors would return to fundamentals.

Rajan also admitted that India was going through problems, but said that the government was working on solving them through measures like coal pricing, gas block pricing and FDI liberalisation.

Planning Commission Deputy Chairman Montek Singh Ahluwalia said he was surprised by the market reaction to Fed’s statement and termed the depreciation of the rupee as a temporary phenomenon. “Currencies in all emerging nations are being impacted. The current account deficit (CAD) is responsible for large rupee depreciation. The Indian government will not fix exchange rate. However, it is up to the RBI to decide on intervening in the currency market,” he said.  “The Indian economy is improving and the government is giving highest importance to tame inflation.”

India’s CAD widened from 5.4 per cent in the July-September quarter to a record 6.7 per cent of the GDP in October-December quarter, 2012-13.