The Reserve Bank of India cannot arrest the rupee's decline if it is caused by weak fundamentals or global factors but can only take more calibrated steps in the forex market in such a scenario, top official said on Friday.
“If the rupee fall is due to fundamental weakness of the economy, or due to global factors, then the RBI cannot support it,” RBI Deputy Governor K. C. Chakrabarty told reporters on the sidelines of an HR summit of the state-run banks here.
The government must address trade deficit issues if the fall of the rupee was due to weak fundamentals, he added. “If the rupee is depreciating due to real sector issues, financial sector measures will not solve it,” Mr. Chakrabarty said.
The rupee has been losing value against all the major currencies, especially the American dollar, since April and hit an all-time low of 56.52 on Thursday. As a measure to contain dollar demand and help support the rupee, Mr. Chakrabarty also hinted at opening a separate window for oil companies.
Without referring to the forthcoming mid-quarter review of the monetary policy slated for June 18, the RBI Deputy Governor said, “If inflation comes down then interest rate will also come down.”
Keywords: Indian economy
Interest rate is also one of the factors affecting inflation. In India, presently both, interest rate at 8% and inflation at 7.23%, are at high level. If interest rate is reduced it would reduce the inflation. At the same time, on reduction of interest rate money supply would increase and it would add fuel to economy. Therefore, whild reducing interest rate, RBI should increase CRR and SLR.
Government should take immediate steps to incrase the dollar supply on permanent basis by way of Dollar bonds payable after 5 years, tax incetive to Residents on receiving foregin currency gifts etc.
To encourage exporters, like in China, more incentives are to be provided to exporters.
Integrity and transparency at all levels is to be ensured in order to enhance the image of the country which is viatal to build up investor confidence.
Dr. R.Venkatachalam, Dubai
What is difficult to comprehend is that the government is citing 'payment of oil dues' as the major reason for the rupee's slide against the dollar. If that were to be the case, were the oil companies hoarding up their bills until now and waiting for the dollar to increase in value to make their payments ?? Wasn't 'payment' by oil companies a regular job before too ?? The government has to devise policies to address the trade deficit and thereby increase the confidence in foreign investors. The political crisis, which has completely engulfed the govt now, needs to be tackled in a decisive manner to boost investors morale. Only improper and untimely adoption of financial measures will not stop the Rupee depreciating against the other currencies.
Interest rate is one of the causes of inflation and not the other way round bring down the interest rate inflation will come down automatically. With a weak rupee why the volume of export could not be increased? This shows an inherent weakness of the real sector.The irrelevent imports should be curb to correct the current account deficits which will strenghten the rupee to some extent.The restriction should be made for the outflow of the capital through the purchase of the immovable assets abroad. Austerity measures should be adopted by giving away all the unnecessary government expenditures. Military spending should also be reduced. The financial sector should be made to serve the reals sector and not the vice versa.It is strange that inspite of the sliding dollar and euro crisis the indian rupee instead of strenghning is falling.This all reflects economic mismanagment inspite of Economists like Dr. Manmohan Pranab and Chidambram at the helm of the affairs.
Intelligence sleuths should wake up from slumber and get into action. This sure is an instance where hoarders of cash are making hay in close association with bureaucratic setup. This game of easy money making is often played in connivance of bureaucracy of both the participating countries. Why not freeze all the accounts of people who have made profits abusing the volatile nature of rupee ?
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