New Delhi: India has enough “firepower" of foreign exchange reserves to deal with the current volatility in the rupee, economic affairs secretary Subhash Chandra Garg said on Friday. The rupee had on Thursday breached 69 a dollar mark, registering a new lifetime low against the greenback. The economic affairs secretary said the volatility in the currency market is being driven by global factors including the proposed US sanctions on Iran and the mismatch in demand and supply of oil.
“We have adequate reserves, there is adequate firepower," Garg said.
The economic affairs secretary also said that, if needed, the government could raise funds through foreign currency non-repatriable (FCNR) deposits, sovereign bond or other routes to increase forex reserves. “If we assess at any stage that we need to buttress or refurbish our reserves, the options are open," he said adding “that situation has not arisen."
Compared to 2013 rupee crisis, when the currency depreciated to its then life low of 68.86 against the dollar, the current situation was much better, mainly due to higher forex reserves, services exports and inflow of remittances by non-resident Indians, Garg said.
The rupee recovered on Friday and was trading at 68.56 against the US dollar, up 0.33% from its Thursday’s close of 68.79.
The depreciation of the rupee has the potential to increase domestic inflation as imports, particularly crude oil, gets costlier. A sharp rise in inflation will be detrimental to growth, especially when investment is just reviving.
The rupee’s fall to fresh all-time lows against the dollar is the direct fallout of flight of dollars from domestic equity and bond markets. So far this year, rupee has lost nearly 7% against the dollar. Foreign institutional investors have sold $836.68 million in equity and $8.45 billion in debt respectively.
The rupee has also been buffeted by concerns over rising current account deficit. Despite the rise in the current account deficit, it remains modest relative to GDP and is largely financed by equity inflows, including foreign direct investment, Moody’s said in a note on Thursday, adding that the large foreign exchange reserves provided a good buffer.
“India’s low dependence on foreign-currency borrowing to fund its debt burden limits the risk of currency depreciation transmitting into materially weaker debt affordability," Moody’s added.
With Reuters Inputs