Thaindian News

New Delhi, Dec 14 (IANS) The slide in rupee, which fell to a new low of 53.75 against a dollar Wednesday, is driven by external factors especially general appreciation in the value of greenback, so the government can do little to check the volatility, said C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council.

“If the behaviour of Indian rupee is because of certain factors which generate in the Indian economy, then we can use the foreign exchange reserves to control the volatility,” Rangarajan said at the Delhi Economics Conclave here.

He said the recent movement in rupee was mainly because of external factors so the Reserve Bank of India can do little to check it.

“The stated policy of the Reserve Bank of India is to prevent volatility in the foreign exchange market. To the extent to which the behaviour can be attributed to volatility, then the Reserve Bank will act,” Rangarajan, a former governor of the RBI, told reporters on the sideline of the conclave.

The value of Indian currency has depreciated over 18 percent since July. The rupee fell to a new low of 53.75 against a dollar Wednesday in Mumbai inter-bank trade.

Rangarajan said the capital outflows and widening current account deficit, apart from the external factors, were responsible for the slide in the Indian rupee.

“The behaviour of the rupee is a reflection of the current account deficit and the extent of capital flows. It is always possible that there could be mismatch for the temporary period between the current account deficit and the capital flows,” he said.

“If there is a temporary mismatch, this will lead to pressure on rupee. But if the capital flows pick up, then what we are now seeing can also get reversed,” he added.

Earlier, addressing the conclave, Finance Minister Pranab Mukherjee said sharp capital outflows have led to recent volatility in the value of rupee.

He pointed out that while excessive capital inflows in the aftermath of global economic crisis led to sharp appreciation in the value of Indian currency, the reversal has now caused a sharp depreciation.

“We have witnessed sharp depreciation of the rupee vis-a-vis the US dollar in the last few months. Slowdown in external demand has led to deceleration in the growth of exports in recent months with the current account deficit widening to around 3 percent of GDP,” Mukherjee said.

A depreciating rupee makes imports costlier, and has a major impact on the country’s oil bill as it puts pressure on retailers to hike prices of at least de-regulated fuels like petrol and aviation turbine fuel. This adds to the inflationary pressures.