The Reserve Bank of India on Tuesday said it would not intervene in the foreign exchange market unless the situation was grave, though the rupee touched a 16-month low of 47.59 against the U.S. dollar.

“It is clear policy of the RBI that we address volatility and not the level unless it is grave and adverse situation,” RBI Deputy Governor Anand Sinha told reporters when asked if the RBI would intervene to check volatility in the currency market.

Rupee closed at 47.59/60 to a U.S. dollar, lowest since May, 2010. As the stock markets fell around the world and capital flows reversed from the emerging markets, including India, the rupee lost by more than 2 per cent against the dollar in the last one week.

Agreeing with Mr. Sinha, Planning Commission Deputy Chairman Montek Singh Ahluwalia too said the central bank should intervene in the forex market only in extreme circumstances.

“The policy that we have followed for long time (is) that the rupee should move according to market conditions. We allow the rupee to fluctuate depending on the market situation. The RBI would only intervene when there is excessive instability,” he said.

Meanwhile, replying to a query related with entry of corporates in the banking sector, Mr. Sinha said the business houses had shown that they had the managerial capacity.

“...at the same time we are acutely aware of self-dealing and therefore the draft guideline talks in terms of stringent eligibility criteria and a host of surrounding control to ensure that self-dealing is not allowed or it is checked in time,” he said.

The RBI recently released draft guidelines for entry of new private banks.However, central bank would issue the final guidelines for granting bank licences to corporates only after Parliament approves the Banking Laws (Amendment) Bill, 2011.

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