Money & Banking

Exchange rate volatility is harmful for growth: RBI

PTI Hyderabad | Updated on March 12, 2018 Published on August 02, 2013

D. Subba Rao, Governor of Reserve Bank of India, launching the Centre for Information Assurance and Management at IDRBT in Hyderabad on Friday. Beside him are B. Sambamurthy, Director, IDRBT, and Anand Sinha (right) Deputy Governor, RBI. Photo: P.V. Sivakumar   -  Business Line

The Reserve Bank of India today said that liquidity tightening measures will be rolled back only after stability is restored in the forex market as volatility hurts growth.

“We will roll back these (liquidity tightening) measures only after we determine that stability has been restored to the foreign exchange market,” RBI Governor D. Subbarao said while addressing an award function here.

In order to rescue the declining rupee, RBI and market regulator SEBI had imposed various restrictions in the futures market by way of raising the margins and limiting the positions that market participants can take.

RBI, Subbarao said, had also prohibited proprietary trading in forex market by banks to curb undue speculation in rupee which was resulting in the volatility of the exchange rate.

In RBI’s view, he said: “undue volatility of the exchange rate is harmful for growth and stability and such volatility should be curbed’’.

The rupee, which had touched a life-time low of 61.21 against the dollar on July 8, was trading around 60.80 today.

In order to contain the Current Account Deficit (CAD) and arrest the value of declining rupee, the RBI had last month raised the cost of borrowing for banks and reduced the availability of funds to curb speculation in the forex market.

RBI did not rollback these measures in its first quarter monetary policy which was unveiled earlier this week.

Prime Minister Manmohan Singh and Finance Minister P. Chidambaram had said that the measures announced by RBI were not indicative of firming up of interest rates in the long-term and would be withdrawn once stability was achieved in the forex market.

Published on August 02, 2013
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