FM, Subbarao assure markets no new capital control measures proposed

On a day the rupee nosedived to its hitherto lifetime low of 65.56 to the dollar, taking the government and the country’s monetary regulator by surprise, Finance Minister P. Chidambaram and RBI Governor D. Subbarao rushed in to douse the fire.

After a three-hour discussion on Thursday — in which the RBI Governor-Designate Raghuram Rajan also participated — over the state of the economy and the battering on the currency and stock markets, which have been plummeting owing to sheer nervousness as also speculation, Mr. Chidambaram and Dr. Subbarao sought to quell the panic, reiterating that there were no fresh capital control measures in the offing and, therefore, there should be no cause for panic.

In identical press conferences in quick succession after the close of the day’s trading on the currency market and the bourses, the Finance Minister and the RBI Governor sought to impress upon all stakeholders that the rupee, after the battering, was undervalued although there was no target level for the Indian currency and the RBI would revisit measures “to check speculation in forex market once stability returns.”

Reading out a statement at the press briefing, Mr. Chidambaram said: “We believe that the rupee is undervalued and has overshot what is generally believed to be a reasonable and appropriate level…There is no cause for the panic that seems to have gripped the currency market and that is feeding into other markets…We are confident that stability will return in these markets and we can get on with the task of promoting investment and growth.”

In his bid to drive home the point that there was no reason for “excessive or unwarranted pessimism,” Mr. Chidambaram said: “There was — and is — no intention to introduce any type of capital control, including controls on repatriations. It is not the policy of the government or the RBI to resort to capital control or reverse capital account liberalisation. The measures that were taken last week will be revisited as stability returns.”

At a separate informal briefing later, Dr. Subbarao said: “We have taken those measures again to curb volatility, in order to curb certain outflows, and we will revisit them as stability returns…I believe our forex reserves are adequate to manage current situation”.

At the end of the day’s trading, while the rupee recovered to settle at 64.55, a slide of 44 paise from the previous close, the stock markets jumped with the Sensex vaulting 407 points as investors indulged in value buying.

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