Asserting that the rupee is on a much stronger footing now, the Finance Ministry, on Thursday, said the government and Reserve Bank of India were vigilant and all steps would be taken to ensure stability in financial markets in the wake of the U.S. Fed’s decision to further trim its monetary stimulus.
“As long as it (the value of rupee) is range-bound, which is what we believe it will be, I do not think it should be a matter of concern. I don’t think there should be a speculation on the rupee, which is backed by very strong macroeconomic fundamentals,” Economic Affairs Secretary Arvind Mayaram told reporters.
The rupee in early trade was inching towards 63 to a dollar on fears of capital outflows in the wake of further tapering of bond purchase in the U.S., but the local currency later recovered to end the day at 62.56.
The BSE Sensex slipped over 225 points intra-day, but recouped some lost ground to close at 149 points lower. “The rupee breaching 63 is not a matter of concern. If it breaches 63 and then pulls back then it is range-bound because these are normal market operations,” Dr. Mayaram said.
Stating that the current account deficit (CAD) would be below $50 billion this fiscal and the country had foreign exchange reserves of $295 billion, he said “the rupee in that sense stands on much, much stronger footing. I don’t think there is much reason to be concerned.’’
A Finance Ministry statement said the government and the RBI will continue to remain vigilant and will take whatever steps are necessary to ensure that there is stability in financial markets.
The Finance Ministry said the U.S. Fed decision was expected, and should not in anyway surprise or affect Indian markets. However, it might be noted that $65 billion was not a small sum.
The Ministry reaffirmed that the Indian economy was better prepared for consequences, if any, of the U.S. tapering.
Dr. Mayaram said the economy had emerged out of the trough, and the government would rein in the fiscal deficit at 4.8 per cent of GDP in the current fiscal.
The statement further said the Federal Reserve had not announced a sequential taper and had made it clear that “asset purchases are not on a pre-set course” and that they will take “further measured steps at future meetings.”