Mumbai: The Reserve Bank om 25 April 2007 said it has been successful in managing the rupee exchange rate, which has helped in sustaining high growth and controlling inflation.
“Our policy analysis by and large has been forward looking, policy actions reasonable and policy outcomes impressive...others have said we have done a commendable job,” RBI governor Y V Reddy told PTI.
Reddy’s observation came in the face of rupee appreciating to a new nine-year high breaching the 42 mark to a dollar after the apex bank stopped intervention in the forex market to check surging currency flows.
While emphasising that exchange rate is “market determined”, Reddy said that if rupee continues to appreciate it will lead to cheaper import and increase in demand thereby pushing up inflation.
The rupee gained another 15 paise to 41.02/03 against the US currency in late morning deals today.
On the other hand, depreciating rupee would lead to higher capital inflows posing a challenge to liquidity management, which also impacts inflation.
“Going by the economic growth rate of 8.5% average inflation at 5% current account deficit less than 2%, despite oil and food shock over the last four years, I would say we have done our balancing act very successfully,” Reddy said.
“Many emerging economies are doing the balancing act... and you cannot say ex-ante that this is the right rate,” he said.