As the rupee dipped to its all time-low of 54.46 to a dollar today,leading to increasing calls for arresting its fall at any cost,RBI Deputy Governor K C Chakrabarty said the Reserve Bank intervenes in the forex market only to curb volatility and not the slide.
“We don’t intervene to arrest the rupee fall,we intervene only to arrest the volatility,you must understand the difference,” Chakrabarty told reporters on the sidelines of an event here.
The rupee has been depreciating for over a fortnight due to higher demand from importers and concerns over the widening current account deficit,and dipped to an all time low of Rs 54.46 to the dollar during trading earlier today. Yesterday,it was at an all-time closing low of 53.97 to the dollar despite reported massive dollar selling by the monetary authority.
In fact,the rupee has been on the downslide since last August when dollar became the most-sought after currency.
Since then,it (rupee) lost nearly 24 per cent.
Last December 15,it had hit the life-time low of 54.30 in intraday trade. However,since January,the local unit has regained some lost ground,appreciating nearly 10 percent.
But come April,it resumed its downward spiral on the back of a record high current account deficit of 4.3 percent during the last quarter ending December and a high fiscal deficit,which touched 5.9 percent against a projected 4.1 percent in FY12.
The steep plunge has forced the Reserve Bank to take a host of steps to stem the fall,including intervening in the market by selling the dollars from its USD 294-billion reserves.
According to estimates,the RBI has sold a sizeable chunk from its chest to prop up the doddering currency.
Apart from selling the greenback,the RBI has also taken some policy decisions like increasing the cap on interests on deposits by the diaspora,asking exporters to convert half of their external currency earnings into the rupee,and increasing its open market operations among others.
There are also reports saying the RBI could consider opening a separate facility for oil importers,who constitute the single largest chunk of dollar buyers,and keep them off the forex market.
In FY12,the oil import bill touched a whopping USD 145 billion,out of the total USD 485 billion of imports.
When asked about the range of the rupee,Axis Bank Managing Director and Chief Executive Shikha Sharma said it (54 to a dollar) is a “fair level.”
“Based on whatever conversations we’ve had on this,based on purchasing power parity,Rs 54 to a dollar seems like a fair level for the rupee,” she told reporters.
Meanwhile,Infosys chief financial officer V Balakrishnan said he expects the rupee to trade in the Rs 53-54 range for the next 3-6 months.
“The rupee is depreciating because of what is happening globally where the euro is depreciating because of the lingering Eurozone crisis.
Also,we have got a unique problem where you have huge trade deficit and also the fiscal deficit,” he said.