RBI needs transparency

MUMBAI, January 17: Former Reserve Bank governor S S Tarapore has said that the Reserve Bank must indicate the real effective exchange rate ...

MUMBAI, January 17: Former Reserve Bank governor S S Tarapore has said that the Reserve Bank must indicate the real effective exchange rate of Indian rupee in its weekly bulletin in order to clear certain doubts related to the factors that led to the volatility of the Indian currency in the interbank exchange market.

Reacting to various measures taken by the Reserve Bank, Tarapore said that there was no need to hide any facts related to the level of effective exchange rate of rupee. Such transparency in exchange of information would curb the volatility in the market and contain the speculators to create any damages to the economic fundamentals.

In fact, the Reserve Bank is in an advantaged position to publish information related to the exchange rates mainly when the economic fundamentals like the inflation rate and current account deficit remained reasonably at low levels, he said.

At present, Reserve Bank publishes the rupee8217;s effective exchange rate in its monthly bulletin with a gap of three to four months which is of no use. But now this level should be indicated on weekly basis so that the people should not not speculate on this sensitive issue.

Asked about yesterday8217;s Reserve Bank measures on hiking bank rate and cash reserve ratio CRR, Tarapore said that the measures were far from being a roll back of the reform process and reflected the fine maturity and judgment of the central bank particularly in an emerging integrated monetary and exchange markets.

Insisting that the rupee would be within the five per cent margin of the Real Effective Exchange Rate REER as recommended by the Capital Account Convertible CAC committee headed by him, Tarapore said that the RBI measures would not have any adverse effect on the real economy since the decline of the rupee against the US dollar was relatively small as compared to the other currencies of the Far East nations.

Tarapore said the short term interest rates would rise and effectively reverse the leads and lags and this was precisely what the authorities should be doing in case of any pressures on the exchange rates.