Ministry against ‘undue’ intervention by the central bank

Ministry against ‘undue’ intervention by the central bank

New Delhi: India’s finance ministry is not in favour of any “undue" intervention by the central bank in the forex market to prop up the rupee, a senior finance ministry official said on Wednesday, a day after the local currency hit a record low against the US dollar.

The government will release official figures of GDP for the second quarter to September next week.

The rupee on Tuesday slid to an all-time low of 52.73 against the dollar as foreign investors continued to pare their exposure to Asia’s third largest economy on lingering global uncertainty and mounting worries over the domestic economy.

The rupee has lost 14% of its value in 2011 to be the worst performing currency in Asia.

“We are not in favour of undue interventions by the Reserve Bank except to check volatility, because of macroeconomic implications for the next year," the official, who declined to be named, said.

“The rupee is depreciating mainly because of external reasons, which are outside our control."

The partially convertible currency, however, bounced back more than 1% on Wednesday after suspected central bank intervention.

The comments endorse the stand taken by the Reserve Bank of India (RBI), which has always maintained that it does not protect any particular level of the rupee and would only intervene to iron out excessive volatility.

RBI operates independently on monetary issues but often consults the government on important policy moves.

“We expect the rupee to remain around 50 for next three months," the official said, adding, “It should firm up to around 45 over a period of five-six months...if the situation in the euro zone does not deteriorate."

Finance minister Pranab Mukherjee on Tuesday also blamed the fall in the rupee on the international market and said that RBI intervention would have a limited effect.