RBI not to intervene in forex market: Gokarn

The Reserve Bank of India (RBI) has no plans to intervene to prevent the movement of the rupee at the moment.

“The rupee is essentially a market-determined currency. So there is no policy position in terms of intervening to prevent the movement of the rupee,” the RBI Deputy Governor, Dr Subir Gokarn, told media persons on the sidelines of a lecture here on Friday.

His comment assumes significance against the backdrop of the weakening of the rupee following global fears of another recession. Intervention by the central bank could raise concerns over liquidity as the bank's dollar purchases could suck out rupee liquidity.

Liquidity watch

Dr Gokarn said the immediate concern was one of liquidity. “We do not want the market to be disrupted by constraints of liquidity. We are watching the (liquidity) situation,” he said.

He said the two factors that would “shaping our stance” in the months ahead are domestic demand pressure and commodity prices. “We saw commodity prices soften a bit in May-June. But the trend did not persist and by the time we started our July process, they had stabilised. Now if this is the beginning of a softening trend, it clearly will have some impact on our thinking in terms of our stance,” he said.

Earlier, delivering a lecture on ‘Monetary Policy, Business Environment and Corporate Growth' at the ICFAI Foundation for Higher Education, Dr Gokarn said recent inflationary pressures were being exacerbated by ‘structural trends in food prices”.

He pointed out that high inflation, even with high growth, was not conducive to investment or corporate performance. “On growth, our objective is to ensure that it is at maximum level that does not promote inflation. This may result in slower growth than is possible at any given time, but will help achieve sustained higher growth,” he said.

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