India plans to curb rupee’s fall

India's rupee hit a new lifetime low against the dollar yesterday as the government said authorities would take "action as warranted" to stem the fall. The rupee has been hit by speculation that the US Federal Reserve will cut back on asset purchases which have fueled flows into emerging markets and as well as by growing concern about India's economic weakness. "A large part of the rupee's fall is due to dollar strength," the Finance Ministry's chief economic adviser Raghuram Rajan told reporters in New Delhi, adding that there was "no sense of panic". Emerging market currencies across the world have been hit by dollar strength triggered by a robust US jobs report. Rajan added authorities "will take action as warranted" to curb the rupee's fall. He said the central Reserve Bank of India (RBI), stock market officials and the government were "keenly following what is happening". Traders said the RBI was believed to have intervened in foreign exchange markets yesterday, selling a small number of dollars for rupees to lift the Indian currency off its record low of Rs. 58.98 to the greenback. The RBI was suspected to have "intervened at around the 58.97 level by selling dollars", a private bank dealer, asking not to be named, told AFP. After the reported RBI move, the Indian currency recovered by about a fifth of a rupee to 58.62 rupees to the dollar. The latest bout of weakness has taken the currency well below its previous lifetime low of Rs. 57.32 hit on June 28 last year. The RBI has a policy of not commenting on movements in the foreign exchange market and of intervening only to curb volatility. "This is a sentiment-driven phase for the market," the dealer told AFP, adding the rupee could trim its losses and recover to Rs. 58.0 levels in coming days. Analysts say the bank cannot intervene heavily to buttress the currency as it must retain enough foreign reserves for imports. It only has sufficient reserves for seven months of imports — the lowest cover in 13 years. The rupee's fall is the latest blow to Asia's third-largest economy, which has been beset by sharply slower growth, worsening public finances and political turmoil. The weaker currency makes imports costlier, especially of foreign oil on which India heavily relies, and will stoke already high consumer inflation. India is also already contending with a bloated current account deficit — the broadest measure of trade. The Finance Ministry's Rajan said he believed the rupee was "oversold" and would recover some of its weakness in coming days. "We expect to see a resumption of equity inflows as the realization dawns (abroad) that Indian assets are quite cheap," he said. "We have gone beyond what is warranted by (economic) fundamentals," he added. He said the government was committed to narrowing the current account deficit , which ballooned to 4.89 percent of gross domestic product last year from 4.2 percent the previous year, and this "includes restoring conditions for investment and growth". Rajan said he would soon announce proposals to increase foreign direct investment (FDI) caps to boost currency inflows but would not say in which areas of the economy Last year, the Congress government opened the retail, aviation and other sectors to greater FDI in a bid to spur an economy growing at just five percent — a decade low. Rajan said government steps to curb gold purchases, one of the biggest contributors to the current account deficit, had already reduced consumption of the precious metal by more than three-fold. Source: ArabNews