The recent free-fall of the rupee is an “aberration” and the currency will correct itself soon once the outflows get contained, Economic Affairs Secretary Arvind Mayaram said in Mumbai on Wednesday.
“What we are seeing on rupee today is primarily on account of global developments and not so much due to domestic issues. The currency will correct itself soon as our fundamentals are very strong, and the economy is on the right-track. We are seeing green shoots of growth and inflation is coming down,” Mr. Mayaram told an investors summit in Mumbai.
He also based his optimism on the likely improvement in the current account deficit (CAD), as gold imports in the past two weeks have come down substantially. “I think the moderation in CAD will take place very soon.”
Ruling out any government intervention to arrest the fall of the rupee, he said, “We don’t believe there should be an intervention to support the rupee. Fiscal deficit is completely under control, though CAD is an issue. I think the measures taken to boost exports should help moderate the current account deficit.”
Rupee hit a life-time low of 58.98 to the dollar intra-day on Tuesday, though it recovered to close at 58.39. Since May the currency has lost 5.7 per cent and since January 8 per cent against the greenback.
The rupee ruled firm by gaining 21 paise to 58.18 per dollar on fresh selling of dollar in the late morning trade on Wednesday.
Mr. Mayaram also ruled out launching NRI bonds to stem the rupee fall and said there should be no panic over the depreciation.
He exuded confidence that there will not be large outflows from the country. “If the macroeconomic parameters continue to improve, which we believe they are improving, then it certainly would have a positive impact on the rupee. We are not saying that the government will take any specific measures for the rupee, but we will continue to work towards strengthening the macroeconomic parameters.
“This in effect has an overall growth impetus and improves the value of the rupee also,” he said.
Mr. Mayaram said green shoots of a recovery in growth are already visible and the economy “will see a revival in investments in the next four to six months.”
He said there is no need for the government to intervene in the matter, adding the Reserve Bank watches the movement regularly, takes the necessary actions.
An improvement in the key macroeconomic indicators will help in the recovery of the rupee, he added.
He underlined the high current account deficit (CAD), a prime factor hitting the rupee, as a major concern and said it is growing due to the inelastic demand for oil and gold.
The government has taken a slew of measures on the gold front, he said, adding imports of the precious metal have come down in the last seven days.
However, Mr. Mayaram said the government is not mulling any more steps to curb gold demand at present.
Stressing that lower interest rates alone cannot bring back investments, Mr. Mayaram said the RBI has cut its key rates by 1 per cent since January and has assured to do more if inflation comes down.
He also pointed out that there has been a cooling off in both the wholesale and retail price inflation, which came down to under 5 per cent for the first time in three years in April, and the consumer price inflation which declined to 9.39 per cent during the month.
The top official further said he believes fluctuations in the markets are a temporary phenomenon and that once the impact of reform measures starts flowing in, markets will regain its levels.
He said the purpose of the policy was to create the enabling environment to support growth.