Chennai: India’s current account deficit has been a contributing factor to the downward movement of the rupee, said Reserve Bank of India deputy governor Subir Gokarn. High demand for the dollar to finance the deficit and capital inflows are not matching, putting pressure on the rupee, he said.
As the current account deficit corrects, be it due to lower oil prices, exports picking up or imports going down, it will have the reverse effect -- help stabilise the rupee, he told reporters in Chennai on Tuesday.
RBI is focused on maintaining liquidity conditions within the comfort zone, depending on which it will decide to conduct open market operations.
“I don’t think the rupee movements are directly correlated with open market operations but are being driven by judgements on liquidity conditions and will continue to be driven by conditions on liquidity – whatever is causing the liquidity stress whether it is foreign exchange markets or something else,” said the deputy governor.
The central bank is also watching the progress of the monsoon, he said.