As the rupee slumped to 66.74 per dollar on Monday, its lowest since September 2013, Reserve Bank of India governor Raghuram Rajan said the central bank will not have any "hesitation" in using foreign exchange reserves to reduce currency volatility. (Watch Video)
The selloff in the rupee weighed on the domestic markets too, with the BSE Sensex crashing over 1,700 points on Monday as Asian markets reeled under fears of a China-led global economic slowdown.
Dr Rajan noted that India was in a better position relative to other countries. He also said India's macro-economic problems were "under control" although he added that the country would need to focus on increasing domestic production as an effective way to protect itself against a global economic slowdown. (Read: RBI Can Use Forex Reserves to Curb Volatility: Raghuram Rajan)
"Many of you are watching markets this morning worried about the continued volatility from last week. While I don't want to opine on the future direction of markets, I will say that relative to other countries India is in a good position with strengthening growth, a low current account deficit and narrowing fiscal deficit, moderating inflation, low short term foreign currency liabilities and very size-able exchange reserves relative to imports and liabilities," Dr Rajan said.
The Reserve Bank does not target a specific level for the rupee, but intervenes in forex markets to curb volatility in the currency through state-run banks.
The rupee has come under huge selling pressure since August 11, when China devalued its yuan currency. The devaluation of the yuan stoked concerns about the state of China's economy, already growing at the slowest pace in 25 years.
Traders fear that China could be forced to devalue the yuan even more should its economy falter. This has led to concerns about a currency war that could prove disastrous for global equity markets.
Last week, Dr Rajan said China's devaluation of the yuan was not a concern, but did not rule out a currency war if the move was part of a long-term competitive devaluation.
The Indian rupee has fared better than its emerging market counterparts, though it has lost nearly 4 per cent in the last two weeks. South Africa's rand struggled at 14-year lows, the Turkish lira languished near a record low, while the Malaysian ringgit hit a 17-year low. South Korean authorities were suspected of selling dollars to arrest the won's fall.
The depreciation in the rupee hits foreign investors and diminishes their returns. Analysts say foreign funds have started selling shares aggressively because of the rupee fall.
The rupee ended 81 paise lower at 66.64 on Monday as compared to its Friday's close of 65.83/dollar.
Source:- profit.ndtv.com
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