The Hindu Business Line : Rupee rise due to huge capital flows: Rakesh Mohan

THE recent surge in the value of the rupee against the US dollar is mainly due to the sharp increase in capital flows, according to Dr Rakesh Mohan, Deputy Governor, Reserve Bank of India.

Speaking to presspersons here, Dr Mohan said, "We have to look at it the rupee's appreciation in context of the kind of capital flows that were coming in.''

"The Reserve Bank of India's operations and the overall policy in terms of foreign exchange management remains the same that the exchange rate is market-determined. But given the state of the Indian economy we don't like excessive volatility. We move to curb excess volatility. There is no change in terms of the operational procedure on the thinking of forex management," he said.

The domestic currency ended around six paise stronger than its previous close on Monday, ending at 43.67/68. The rupee has been steadily and sharply appreciating since March 22.

According to market participants, one of the main reasons for the swift rise in the value of the rupee was due to a deceleration in the level of RBI intervention in the market.

Forex dealers and currency experts have observed that the apex bank has not been mopping up the dollars quite as aggressively as usual, and there has been some talk that it could be due a depletion in the securities portfolio of RBI, due to which it does not have enough government stock for sterilisation operations in the market.

However, some traders expect some volatility or correction in the rupee with the introduction of the stabilisation bonds on April 7, even as the medium term view for the rupee seems to be an appreciation trend against the dollar.

On the new liquidity adjustment scheme, Dr Mohan said, "We would like to operate LAF purely for liquidity management and not for sterilisation purposes."