S.S. Mundra said that the country is on the right path when it comes to the level of foreign exchange reserves and current account deficit. Photo: Abhijit Bhatlekar/Mint
RBI to prevent undue rupee volatility
1 min read . Updated: 25 Aug 2015, 02:04 PM IST Joel Rebello
RBI deputy governor S.S. Mundra said the central bank can't target a particular level for the rupee, but can step in to ensure the currency is not volatile
mint-india-wire RBIRupee volatilityForex reservesS.S. MundraRaghuram RajanRupeeCurrency
Mumbai: Reserve Bank of India (RBI) deputy governor S.S. Mundra on Tuesday reiterated that the central bank would step in to prevent an "unruly or undue" volatility in the rupee.
Speaking on the sidelines of a banking conference organized by the Federation of Indian Chambers of Commerce and Industry (Ficci), Mundra said RBI cannot target a particular level for the rupee, but can step in to ensure the Indian currency is not volatile.
"Markets are supposed to be quite wise and they are capable of governing themselves, so I don't think it is for a central banker to offer any advice to market at this point of time. I would only like to mention that we should look at all the mid-term and long-term policies which are being put in place," he said.
Mundra said that the country is on the right path when it comes to the level of foreign exchange reserves and current account deficit. "...I would believe that in the medium to long term, we are on the right path. The reform agenda is progressing in the right direction," Mundra said, adding that India cannot be disconnected from global events.
"We are an inter-connected market and there would be occasion when these kinds of things will happen, but I think the solution is the right mix of medium- and long-term policies," he said.
The deputy governor's comments came amid a sharp fall in the rupee in the last couple of weeks, just a day after RBI governor Raghuram Rajan said that India has $380 billion of foreign exchange to support the rupee.
The rupee is trading near two-year lows against the dollar after a fresh bout of risk aversion in emerging markets due to concerns on China's economic growth.
In a report titled 'What Now?' released earlier on Tuesday, economists of Bank of America-Merrill Lynch India, led by Indranil Sen Gupta, said RBI may have to be prepared for some "heavy duty" forex intervention to prevent a sharp fall in the rupee.
"(We) continue to expect RBI to eventually defend 65/USD, selling up to $20 billion," BofA-ML said.
The economists expect $5 billion to $6 billion of outflows from India mainly for deferred oil payments to Iran to be funded out of either RBI's foreign exchange reserves or its forwards with banks.
PTI contributed to this story.