Mumbai: The Reserve Bank of India will continue to take steps to stabilize the rupee, but the currency’s direction will ultimately depend on capital flows, Subir Gokarn, a deputy governor at the central bank, said on Monday.
“We have done a number of things and will continue to do things that we think will have an impact of stabilizing the currency,” Gokarn said at the sidelines of an industry event.
“But ultimately capital flows are going to be the main determinant of how the currency behaves,” he added.
A file photo of Subir Gokarn,deputy governor, RBI
The rupee fell below the key psychological level of 55 against the dollar to hit a new record low earlier in the day, setting up the prospect of further falls unless the central bank takes measures or intervenes more aggressively, traders said.
The central bank has largely failed to stop the rupee’s fall despite selling dollars and taking steps to attract inflows through deposits and exporters foreign currency holdings. For a factbox on steps taken to bolster the rupee, see: Gokarn also said the RBI was likely to buy bonds through its open market operations (OMOs) this week.
“Since we’ve been working with the benchmark of around 1% of the net demand and time liability (NDTL), we did an OMO last week. We’re likely to do one this week as well, just to make sure that the gap is not widening,” he said.
Demand for funds from banks is likely to be high this week because lenders borrow more at the start of the two-week reporting cycle, and a $2.7 billion debt sale on Friday will further add to liquidity pressures.
Banks borrowed Rs 1.04 trillion from the RBI’s repo window on Monday, significantly higher than the RBI’s comfort level of around Rs 60000 crore, indicating the extent of liquidity strain in the system.
However, the weekly capacity for OMOs is limited by market conditions, but the central bank will continue to do them as and when the liquidity situation warrants, Gokarn said.