RBI not to intervene in forex market

RBI not to intervene in forex market

New Delhi: The Reserve Bank of India (RBI) on Tuesday said that it will not intervene in the foreign exchange market unless the situation is grave, though the rupee touched 16-month low of 47.59 against the US dollar.

“It is clear policy of RBI that we address volatility and not the level unless it is grave and adverse situation," RBI deputy governor Anand Sinha told reporters when asked if the RBI would intervene to check volatility in the currency market.

The Indian currency closed at 47.59/60 to a US dollar, lowest since May 2010. As the stock markets fell around the world and capital flows reversed from the emerging markets, including India, rupee lost by more than 2% against USD in the last one week.

Agreeing with Sinha, Planning Commission deputy chairman Montek Singh Ahluwalia too said that the central bank should intervene in forex market only in extreme circumstances.

“The policy that we have followed for long time (is) that rupee should move according to market conditions... We allow rupee to fluctuate depending on market situation. RBI would only intervene when there is excessive instability," he said.

Meanwhile, replying to a query related with entry of corporates in the banking sector, Sinha said the business houses have shown that they have the managerial capacity.

“...at the same time we are acutely aware of self-dealing and therefore the draft guideline talks in terms of stringent eligibility criteria and a host of surrounding control to ensure that self-dealing is not allowed or it is checked in time," he said.

The RBI recently released draft guidelines for entry of new private banks in the country.

However, central bank would issue the final guidelines for granting bank licences to corporates only after Parliament approves the Banking Laws (Amendment) Bill, 2011.