Mumbai: Speculation about a devaluation of the currency pushed the rupee to a two-week low against the dollar on Thursday despite swift government attempts to allay investor concerns.
The finance ministry denied that it had any discussions on devaluation and commerce minister Nirmala Sitharaman clarified that she did not tell a reporter that the government was discussing a devaluation. The rupee closed the day at 67.03 per dollar, down 0.19% from its previous close of 66.90 on a volatile trading day.
On Thursday morning, the rupee hit 67.07 to the dollar after television channel CNBC-TV18 reported that the finance and commerce ministries are meeting on 20 September to consider devaluing the rupee to boost exports.
The commerce minister immediately denied this, as did the finance ministry, dismissing lobbying by struggling exporters seeking a competitive boost from a cheaper rupee.
The Reserve Bank of India (RBI) appeared to have entered the market at 67.07 levels and sold dollars but the intervention wasn’t heavy, said one dealer on condition of anonymity. Other dealers said the currency could have fallen further but for the central bank stepping in.
Speculation about a devaluation seem to have originated from a 12 September report by The Indian Express that the ministry of commerce and industry has proposed setting up a “formal institutional mechanism" to determine the right value of the rupee for a competitive advantage in export markets.
“The value of rupee is determined by the market and there is no plan to change policy. Reports that the government wants to devalue the rupee are false," economic affairs secretary Shaktikanta Das told reporters.
An expert said the report made no sense.
“The term devaluation is meaningless in our context as India does not have fixed parity," said A.V. Rajwade, an independent treasury and forex consultant.
ALSO READ | Nirmala Sitharaman: didn’t tell reporter I want devaluation
Despite a string of positive factors such as impressive foreign investor inflows into the domestic markets and the comparatively higher yields in India, the rupee has been one of the worst-performing currencies in emerging Asia as the central bank has repeatedly intervened to bolster forex reserves. India’s foreign exchange reserves climbed to a record $367.76 billion on 2 September, some $19 billion higher compared with the beginning of the year.
The rupee is down 1.3% till date this year, while foreign institutional investors have bought $6.24 billion in equity and sold $564.04 million in debt markets.
Some Indian firms have consistently clamoured for lower interest rates and a weaker rupee to make overseas sales more competitive.
India’s merchandise exports contracted by 0.3% to $21.5 billion in August for the second consecutive month after expanding for the first time in 19 months in June.
The Federation of Indian Export Organisations confirmed it discussed the rupee’s exchange rate and interest rates with the commerce ministry. “A rupee devaluation is required," its director general Ajay Sahai said. “Indian exporters are outpriced in the global market."
The central bank’s stance has been that market forces should decide exchange rates and it would intervene to prevent sharp movements in the currency. One of the reasons why RBI has built up forex reserve levels this year is to prevent currency volatility once foreign currency deposits raised in 2013 to ward off pressure on the rupee come up for maturity.
Mint’s Vishwanath Nair and Gopika Gopakumar and Reuters contributed to this story.