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With the Indian rupee falling to a historic low against the US dollar, the Finance Ministry today said that the Reserve Bank and the Government are monitoring the situation.
“The RBI and the Government are monitoring the issue. While the movement of the rupee is determined by market forces, whenever there is excessive volatility, the RBI will intervene as the situation warrants. The RBI will take action as required,” the Finance Secretary, Mr R.S. Gujral, told reporters here on the sidelines of the 35th Head of National Drug Law Enforcement Agencies (HONLEA) meet.
The rupee slid past Rs 52.50 per dollar in the opening trade today before dropping to the lowest level in history of Rs 52.73 per dollar on sustained demand for the US currency from banks and importers.
When asked what level the rupee exchange rate would be a concern, Mr Gujral said that excessive depreciation of the rupee impacts India’s import bill.
“Excessive depreciation of the rupee does impact our import bill. With the marginal decline in crude price, which is close to $107 (per barrel), it obviously gets lost through the depreciation and definitely our import bill for fertilisers and others also gets impacted,” he said.
The rupee is the fourth-most depreciated currency in the world and the most depreciated in the Asian continent.
The RBI has attributed the movement to demand-supply factors and said it is happening globally.
A weaker rupee is a matter of concern for India as it depends on imports for over 70 per cent of its oil and gas requirements and the depreciation of the local currency has made imports more expensive. The depreciation of the rupee comes at a time when headline inflation has remained above the 9 per cent-mark for 11 consecutive months.
Last week, the RBI Deputy Governor, Dr Subir Gokarn, had said the apex bank will intervene in the foreign exchange market only to arrest volatility.
The rupee has shed 16.5 per cent since it hit a peak of Rs 43.85 in late July 2011.
Dr Gokarn had said the RBI would opt for open market operations to manage liquidity in the system only if there is stress and not to influence government bond yields.
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