Even as the rupee has been slipping to new lows against the dollar in recent weeks owing to a combination of negatives factors at home and abroad, Finance Minister Pranab Mukherjee, on Tuesday, said the government was taking a series of steps to contain the volatility in the foreign exchange market and the Reserve Bank of India would step in to intervene as and when necessary.
“The government is taking a series of steps. However, managing [the] rupee is market-related ...There is a lot of volatility. As and when the RBI will consider necessary, it will intervene. It depends on the market forces and market forces are uncertain,” Mr. Mukherjee told the media here.
The Finance Minister was responding to all-round concern over the rupee breaching the psychological 55-mark against the greenback following a sustained pull-out by foreign institutional investors (FIIs) from emerging markets, including India, as part of their global risk aversion strategy and seeking safer havens in the U.S.
Aggravating the situation for India further has been a widening trade and current account deficit (CAD), a high fiscal deficit coupled with rising inflation and concerns over tax on foreign investors. Not without reason, therefore, that the rupee slumped to a new low of 55.47 during the day's trade and closed marginally higher at 55.39 against the dollar.
Such has been the demand for the U.S. currency from importers, especially oil refiners, that the Indian rupee has turned out to be one of the worst performers among other Asian currencies, touching fresh lows in the last couple of weeks. And this has been despite interventions by the RBI to contain the extreme volatility in the forex market.
In a written reply to the Rajya Sabha on the causes for the free fall of the rupee and its impact on the economy, Mr. Mukherjee sought to pin the blame on the global slowdown owing to the eurozone crisis and assured the House that steps were being taken to tackle the situation.
“Global slowdown due to unfolding of eurozone sovereign debt crisis has, inter-alia, impacted the Indian economy,” he said.