Singapore/Mumbai: The Reserve Bank of India (RBI) sets no target level for the rupee and only seeks to limit volatility in the market-driven exchange rate, deputy governor Usha Thorat said in Singapore on Monday.
The rupee has risen almost 12% from a low of 52.19 a dollar reached in March as capital inflows revived. RBI’s ability to invest its foreign exchange reserves, the world’s fifth biggest, is limited by the current account deficit, she said.
“Our objective is only to manage orderly conditions in the market,” she said, referring to the rupee. “There has been quite a two-way movement in the rupee, which continues to be an aspect of policy. We just manage the volatility and we’re not targeting any rate.”
Goldman Sachs and UBS AG have said India’s monetary authority will seek a stronger rupee to prevent rising import costs from fuelling inflation. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials has climbed 35% this year. RBI predicts inflation will rise to 5% by March-end, from an average 0.5% in September.
The rupee fell 0.2% to end at 46.50 per dollar on Monday. It had touched a 13-month high of 46.21 on 8 October. Implied volatility on one-month dollar-rupee options rebounded to 10.7% from a 15-month low of 8.2% reached on 29 September. Traders quote the gauge of expected swings in exchange rates as part of pricing options.
The current account had a shortfall of $5.8 billion (nearly Rs27,030 crore today) in the quarter ended 30 June, from a surplus of $4.75 billion in the previous quarter, according to RBI. “When you have continuous current account deficits, the reserves you are building up are those on which you have some liability,” Thorat said. “For us, the degree of flexibility in the use of reserves is not the same as that in a country which has a surplus.”