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Mumbai, Oct. 30

Even while the Reserve Bank of India has expressed concerns over the currency movements affecting the real sector as a whole, besides exporters, the rupee ended five paise stronger against the greenback on Tuesday.

The RBI has today increased the cash reserve ratio (the amount of money that banks have to set aside) by 50 basis points to mop up the surplus liquidity. “The RBI’s intervention in the forex market in order to cap the appreciation of rupee has brought about surplus liquidity in the system and the CRR hike will mop up a part of it,” said a dealer with a private bank.

The home currency opened at 39.42 and saw an intra-day high of 39.31 before ending the day at 39.37-38, up from the previous close of 39.42-43.

The mid-term review of the annual policy statement from the RBI said that the currency markets are affected through equity market players or in the guise of equity market players and the movements in currency cannot but affect the real sector as a whole, not merely exporters, as is often believed.

The review, however, added that the domestic money markets had exhibited orderly behaviour and surplus liquidity conditions generally, except when equity markets turned volatile primarily in response to global developments. A good example of this is the muted impact of mid-September advance tax outflows on money markets in the current financial year, indicative of active monetary and liquidity management.

Mr N.S. Venkatesh, Managing Director & CEO, IDBI Gilts, said, “The RBI is silent on the appreciating rupee and has instead shown its commitment to move towards capital account convertibility in a gradual manner. The rupee is expected to appreciate further as capital inflows are expected to continue.” –

Our Bureau

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