Mumbai: It was too early to judge the impact that China’s pledge to let the yuan appreciate would make on the rupee and on other variables, a deputy governor of the central bank said on Monday.
A sense of reassurance had set in post the yuan pledge and there was no need to worry about the short-term volatility of the rupee, Reserve Bank of India (RBI) deputy governor Subir Gokarn said.
“Clearly there is a strong signal from China on its change of stance ... and for the global financial community a sense of some reassurance has come that this imbalance issue, at least some resolution, is starting to be seen,” Gokarn said.
China’s central bank said late on Saturday it was ready to make the yuan more flexible, signalling it was ready to scrap its 23-month-old currency peg, citing a global economic recovery and more balanced external trade.
The rupee strengthened to its highest level in more than a month on Monday, boosted by hopes China will allow gradual appreciation of the yuan while the dollar’s losses against major currencies also helped.
“What happens to exchange rate over time, we are evaluating the impact and that, in turn, will have an impact on both trade and capital flow. So you got to wait for some time and see how this clears out,” Gokarn said.
Also on Monday, finance secretary Ashok Chawla said the country would wait and watch the impact of China’s announcement on greater flexibility for the yuan.
Gokarn also said the current tight liquidity situation was temporary and the central bank would consider other means to resolve the issue if the current measures do not help.
“This is not a structural change in liquidity scenario,” he said.