MUMBAI, January 16: To what extent RBI Governor Bimal Jalan can defend the ``national interest'' by arresting the free fall of Indian rupee against the dollar through the measures announced today is the question that is causing confusion among experts and common man.At least ten major measures taken by the central bank in the past did not have any influence on the rupee. On the contrary the rupee crash against the dollar continued inspite of such measures after Bimal Jalan took charge.While he did not make a single statement about the depreciation of rupee during the first few weeks of assuming office, the governor was busy in reversing some of the short term measures announced to control the forex market even before they could serve the purpose.As an academician and economist, Jalan is known as a strong advocate of a ``weak rupee''. The political compulsions, financial crisis in the neighbouring South-east Asian countries and a nationalist party espousing the cause of Indian currency may be some of the factors that prompted the central bank to take such stern measures.Immediately after announcing certain stringent measures to counter the speculative pressure on the rupee, the RBI governor had stated that he would review the policies in the ``national interest''. However, the measures announced by the RBI failed to dampen the spirit of speculators who came back with a vengeance and kept the rupee under pressure.The cut in bank rate and another hike in cash reserve ratio, announced by the RBI, amounts to reversal its earlier policies. As a banker said, ``Jalan seems to be reversing the policies of former RBI governor C Rangarajan. The focus has changed now. The era of loose money policy regime is over. Whatever you do, if dollar inflows don't increase, the pressure on the rupee will continue.''The rupee has depreciated by nearly five per cent after the Reserve Bank of India started tinkering with the system in the last week of November. This came after the rupee fell by over seven per cent to Rs 38.85 by the end of November. The measures announced by the central bank seem to have failed to arrest the down slide with the rupee falling by another five per cent to Rs 40.38 in two months.Even though it tried to arrest the slide by pumping in dollars, the market lapped up dollars sold by the RBI. With the inflow of dollars drying up and no let-up in demand, RBI measures could do precious little except for curbing excessive speculation in the forex market. On the other hand, it is now leading to a rise in interest rates.The major steps taken by the RBI in the last two months included a hike in interest rate on export credit between 90 and 180 days raised from 13 per cent to 15 per cent, interest rate on export credit made 15 per cent from the date of advance, ban on re-booking of cancelled forwards for entities without underlying exposure, squaring up of inter-bank positions at the end of the day's trading and interest rate at 20 per cent on overdue export bills from the date of advance. With these measures not having the desired impact on the decline of the rupee, RBI slowed down its intervention exercise in the forex market. In fact, when the rupee crossed the 40-level earlier this week, the RBI pumped in only 75-100 million. ``It seems the RBI doesn't want to deplete the foreign exchange reserves. The forex kitty has already fallen from $ 30 billion to around $ 27 billion now,'' a sourse said.According to one school of thought, the volatility of the rupee can not be curbed only through policy measures but by improving the supply of US dollars either through higher exports realisation or through increased flow of foreign exchange which has high risk bearings.
