RBI move to curb rupee volatility not a prelude to policy rate changes: FM

Central bank took measures in consultation with the government,says finance minister

Written by Express News Service | Jaipur | Published: July 17, 2013 1:31 am

The steps taken by the Reserve Bank of India (RBI) to support the rupee “should not be read as a prelude to policy rate changes” and it was only aimed at “quelling excessive speculation and volatility in the forex market,” finance minister P Chidambaram said on Tuesday.

The RBI had announced measures late on Monday to curb the rupee’s decline by tightening liquidity and making it costlier for banks to access funds from the central bank.

Chidambaram said that the measures taken by the RBI were in consultation with the government and that “both are on board”.

“The measures taken by the RBI will in no way affect our commitment to growth. We must increase credit delivery and must stimulate growth,” he said.

The finance minister also dismissed any possibility of a ban on import of gold but appealed to the people to reduce purchase of the precious metal. Commenting on the economic situation,he said that the country is set to grow at a rate of 6 per cent or slightly more till March 2014 adding that he considered it “not a satisfactory level of growth”.

The finance minister,who has just returned from a visit to the United States,said that he “would be the happiest person” if globally the economy stabilises. He said that the economies of the US and Japan were showing signs of picking up but were still far from recovery. “Germany,the European Union’s strongest economy,too,is in recession. I’ll be the happiest man if the global economy stabilises. My ambition is a growth rate of 9 per cent. We will get there but for now we need to achieve a growth rate of 6 percent,which in itself will be a sign of a stabilised economy,” he said.

Re recovers,bond yields rise on apex bank’s steps

Mumbai: A day after the Reserve Bank of India stepped in to tighten liquidity in the system,rupee recovered against the dollar,bond yields jumped and banks borrowed a record amount of Rs 2,16,350 crore from the RBI’s repo window.

The rupee gained 57 paise to 59.32 against the dollar on Tuesday. The yield on the 8.15 per cent bonds due June 2022 jumped 52 basis points,or 0.52 percentage point,to 8.2 per cent,according to the central bank’s trading system. That is the biggest yield increase for a benchmark 10-year security since January 2009. “The objective of the RBI steps is to make it expensive to borrow rupees for speculation in the forex market. As a consequence,yields at the long end of the govt bond market have hardened by 50 bps. The rise in money and bond yields is likely to put further pressure on growth in the coming months,” said R Sivakumar,head,Fixed Income Group,Axis AMC.

The short-term borrowing by banks at the RBI’s repo window shot up to Rs 2,16,350 crore as against Rs 92,360 crore on Monday,Rs 72,300 crore on July 12,Rs 59,725 crore on July 11. The RBI had on Monday said it will cap the amount it will lend to commercial banks through the daily repurchase window to around Rs 75,000 crore. ENS ECONOMIC BUREAU

Banks rule out hike in rates

MUMBAI: Top banks have virtually ruled out any tinkering in the interest rates in the near future,saying that the RBI’s liquidity tightening measures are “aimed at stabilising the rupee and temporary in nature”.

State Bank of India chairman Pratip Chaudhuri said the measures taken by the Reserve Bank are designed to curb speculation in the market and are not seen by SBI as indicative of any systemic problem or deeper malaise. IDBI Bank’s CMD S Raghavan said,“From our bank’s perspective,we would like to affirm that we are not contemplating any increase in interest rate in the near future.”

SS Mundra,CMD,Bank of Baroda,said,“(the RBI measures) appear to be purely short term in nature and not likely to impact mid/long term view on interest rates.” ENS

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