Even as a section of economic analysts warn against playing forex reserves to bring about stability in local currency in view of the temporary relief from volatility in market-determined exchange trade, World Bank Chief Economist Kaushik Basu on Monday pitched for use of the foreign exchange kitty to curb volatility in the currency market.
Delivering the 16th JRD Tata Memorial Lecture here on a day the rupee continued its free fall and breached even the 63-mark against the U.S. dollar, Dr. Basu maintained that in such circumstances, it would be a good idea to utilise foreign exchange reserves instead of turning towards the International Monetary Fund (IMF).
Asserting that the current situation was not the same as in 1991, Dr. Basu said: “To use certain amount of your forex to buy and sell dollar I think [is] a good idea ... [It] gives out signal that reserve has a purpose. That is broadly the direction we should go and use reserves to curb turbulence,” he said. Although the rupee, which has been in a slide mode during the year, got sucked into a tailspin in recent days to tank to an all-time low of 63.13 against the greenback in its biggest single-day fall of 148 paise in a decade on Monday, Dr. Basu said the government should not “overreact” to depreciation of the currency.
On the likelihood of India approaching the IMF for funds, despite having forex reserves of about $280 billion, Dr. Basu, while interacting with reporters later, said: “I don’t think we are in a situation where there is any need for that. India has enough foreign exchange reserves. So, the question of having to turn to IMF is not there”.
Arguing that the country currently was nowhere near the crisis situation as in 1991, Dr. Basu said: “Are we back to 1991? That is completely a non-question because if you just look at a couple of numbers, then you say there is absolutely no comparison. Foreign exchange reserves in 1991 was down to $3 billion; India now sits on $280 billion foreign exchange reserves,” he said.
On the steps taken by the Reserve Bank of India (RBI) to arrest the fall of rupee, he said: “Typically, what RBI has done is what central banks with floating exchange rates do”.
