RBI will not hesitate to use reserves to protect rupee

This is the first time that Jalan has spelt out the RBI course of action in relation to forex rate management in a credit and monetary policy statement. He has also make an effort to silence the Cassandras saying the Reserve Bank does not use short term movements in REER as indicator of appropriateness of exchange rate movements.

"The primary objective of the Reserve Bank and the government in management of the exchange rate is to maintain orderly conditions in the forex market and to prevent the emergence of destabilising speculativeactivities," Jalan said in his bi-annual statement to bankers.

It may be recalled that the post-Pokhran developments had led to the rupee touching a lifetime low of 42.70 against the dollar and the RBI had spent nearly $ 3 billion out of its forex reserves in restoring calm to the foreign exchange market. This had seen a massive dip in the forex reserves which had dipped to around the $ 25 billion mark.

Jalan added that to this end the apex bank will continue to closely monitor developments in the financial markets at home and abroad and take such monetary and administrative actions as may be considered necessary. "As before it will ensure that lumpy and uneven demand particularly for oil imports and debt servicing obligation of government does not cause any disturbance in the orderly functioning of the foreign exchange market," the governor said.