The Hindu Business Line : `Forex market seeing orderly conditions'

Dr Y.V. Reddy, Governor of RBI, releasing a book written by Dr Arvind Virmani, Director & CE, Indian Council for Research on International Economic Relations, in the Capital on Wednesday. — Kamal Narang

New Delhi , April 7

THE rupee's marked strengthening against the dollar in recent weeks notwithstanding, the Reserve Bank of India Governor, Dr Y.V. Reddy, today maintained that the foreign exchange market continues to witness `orderly conditions'.

Speaking at a book release function here, the RBI Governor noted that the rupee had appreciated by 9.5 per cent against the dollar since March 2003. But at the same time, it had depreciated by 3.1 per cent against the euro, 5.9 per cent against the pound sterling and 4.4 per cent against the Japanese yen.

"Significant depreciation of the US dollar against other major currencies prompted adjustments in world currencies and this was also reflected in the exchange rate of the rupee", Dr Reddy pointed out, virtually making light of the concerns raised by exporters.

The RBI Governor's remarks significantly concur with the views expressed by the Finance Minister, Mr Jaswant Singh. The latter, in an interview to Business Line last week, had stated that one had to be `extremely careful' in assessing the rupee's movement only against the dollar and what was more crucial was its behaviour vis-à-vis a basket of currencies.

"The rupee has not seen much appreciation against the euro or the yen or the Gulf currencies through which so much of remittances come in, or even the pound sterling. The dollar is easing on account of various factors. So to suggest that the export sector is suffering because of the appreciation of the rupee against the dollar is overstating the case because all export figures belie this apprehension", Mr Singh had observed.

Regarding the relatively low pace of industrial credit, the RBI Governor felt that it partly reflected the shift in corporate financing pattern in recent years, with increased reliance on internal accruals alongside great accent on external borrowings.

But on the whole, non-food credit expansion in 2003-04 was of the order of 17.6 per cent, which was marginally below the 18.6 per cent growth recorded in the previous fiscal. But much of this had to do with the slack offtake in the first months of the fiscal. Since September 2003, the growth in non-food credit over the corresponding period of the previous year was to the extent of 38 per cent.

"Credit expansion in 2003-04 appears to have been led by the housing and retail sectors. This has helped generate new demand for consumer durables, basic and intermediate products, as also new services. The resulting pickup in consumer demand seems to have improved productive activity", he added.