Amid steep decline in the value of rupee, the Reserve Bank Thursday said that it is monitoring the situation and will do whatever is necessary to check the currency’s fall.
“RBI will do whatever is necessary. Some structural changes are necessary for improvement in current account. Meanwhile, the RBI is monitoring the situation and we will do whatever is necessary, consistent with our policy,” RBI Governor D Subbarao said while addressing a press conference after a meeting of the central bank board here.
Pointing out that the rupee has been depreciating over the last three to four months, he said, “RBI is continuously monitoring the situation. We have taken action through current account flows, encouraged inflows and also (steps) to curb speculation.”
After losing ground three days in a row, the rupee today touched its lifetime low of 56.38 to a dollar but later recovered around the same time when Subbarao was addressing media here.
Since March 1, rupee has lost over 13 percent and 11 percent since the presentation of Budget on March 16 in the face of withdrawl of funds by foreign investors from stock markets.
The Budget contained proposals like retrospective taxation and general anti-avoidance rules (GAAR).
The movement of rupee, Subbarao said “is a function of external situation as well as development in current account and capital account and balance of payments”.
On the issue of RBI selling dollars directly to oil marketing companies, Subbarao said, “That’s been an issue on the table. I am not ruling it out. I am also not saying that we are going to do it right know. It’s an open issue. We have done it in past. At the moment, we have not done it so far.”
Several experts, including C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council (PMEAC), have suggested that RBI should consider selling foreign currency to oil companies as they withdraw huge amounts to buy crude in the international market.
Replying questions on the price situation, Subbarao said the deterioration in inflation has been mainly on account of rise in prices of food items.
“We noted that inflation has been a surprise upside for month of April. We also noted that increase has been on account of food inflation,” he said, adding the central bank will take into account recent developments while announcing its mid-quarterly policy review on June 18.
Inflation, represented by the wholesale price index, rose to 7.23 percent in April from 6.89 percent in the previous month, while retail price inflation (CPI) entered double digits of 10.36 percent in April from 9.38 percent in March.
“Core inflation, which is non-food manufacturing (items) has remained below 5 percent. So in our next mid-quarterly review, we will take into account the numbers which have come after our mid-April statement. We will consider how the inflation scenario has evolved. We will take into account the growh statistics and take a decision”, Subbarao said.
Pitching for reduction of fiscal deficit by the government, Subbarao said, it was necessary to contain inflation.
“Our views are quite well known on fiscal deficit. We have said that fiscal consolidation is very important and very necessary for inflation to come down. So we have said that in our annual policy statement last month that government must deliver on the budgeted fiscal deficit target”, he said.
Because of various global and domestic factors, the fiscal deficit of the central government during 2011-12 soared to 5.9 percent of the Gross Domestic Product (GDP) as against the target of 4.6 percent. The government in the Budget for the current fiscal proposed to bring it down to 5.1 percent.
On the possibility of India floating overseas sovereign bonds, RBI chief said, “I cannot say in favour or out of favour. We have done it in the past, it might be done in the future… But it’s not something that is being contemplated right now.”
When asked about the volatility in stock markets, Subbarao said, “RBI does not follow stock market. We look at the stock market for understanding the macro economic situation, but I cannot comment on stock market movements.”
PTI