SOS sought from to central bank as rupee crashes
SOS sought from to central bank as rupee crashes
NEW DELHI (AFP): The Indian government yesterday sent an SOS
to the central bank as the rupee crashed to an all-time low of
38.50 against the dollar but the industry said the situation was
still far from serious.
The rupee crashed to 38.50 at mid-session in the foreign
exchange market but recovered to close steady with Monday's
uneasy finish of 37.75 to the dollar after the Reserve Bank of
India (RBI) intervened with marginal dollar selling.
The commerce ministry, stunned by the sinking rupee, called on
the RBI for "strong" intervention to prevent the speculative ride
on the rupee and park it at round 35 to a dollar.
"Anything beyond this is not the ideal exchange rate of the US
dollar," Commerce Secretary Tajender Khanna said, adding that the
finance ministry as well as his department favored central bank
intervention in the market.
"The RBI should offload more dollars as a further fall in the
value of the rupee against the dollar would only give rise to
speculative activities," Khanna said in New Delhi.
The official said there was no "real justification for the
rupee to tumble as India's import growth rate had been slowing
down with exports registering a robust growth rate of 24 percent.
The run on the beleaguered rupee continued despite the RBI
having warned importers against speculative buying and urged
foreign exchange managers not to panic.
"Exporters have reacted by canceling their forward sales to
authorized dealers, while importers have rushed for cover," RBI
Governor Chakravarthy Rangarajan said.
"These developments are, however, at variance with the
fundamentals," Rangarajan said, adding that India's balance of
payments position remained "strong, underpinned by robust export
growth."
At the end of December, the trade deficit stood at nearly
US$200 million compared with more than $516.35 million in
November.
Rangarajan also said the depreciation of the rupee against the
dollar through January had to be seen in the context of the
strengthening of the dollar against other major international
currencies.
The rupee has been falling against the dollar for the past few
days due to heavy dollar buying by corporations and speculators.
The Indian currency closed the week last Friday at 36.76 to a
dollar and opened on Monday at 36. 80.
The RBI moved in and sold dollars in small quantities, but the
step did not shore up the rupee.
Indian industry on Tuesday tried to allay fears about the
falling rupee and opposed RBI's intervention saying the currency
would bounce back on its own.
"The only way of stabilizing the rupee is through boosting
exports and enhancing foreign investment inflows." said V.
Raghuraman, secretary-general of Associated Chambers of Commerce
and Industry.
The Federation of Indian Export Organization (FIEO) warned
against government attempts to jack up the rupee and predicted
the currency would regain health naturally after dipping to 40
against the dollar.
"The government's intervention could not be lasting and
effective and the best course is that market forces stabilize the
rupee," FIEO director-general R. K. Dhawan said here.
The Federation of Indian Chambers of Commerce said the slide
of the rupee should not cause alarm, adding that strengthening
stock markets would revitalize the currency.
"Going by the recent upswing in the stock market on the
strength of inflows from foreign institutional investors, there
is nothing alarming about the depreciation of the rupee,"
federation president Deepak Banker said.
Banker also said that national banks would have to lend a hand
to help out the currency from its current crisis.
The rupee lost three percent of its value against the US
currency on Monday.
The rupee-dollar exchange rate remained stable at 31.37 to a
dollar for more than two years from March 1993.
It began weakening against the dollar from August and fell to
around 35.55 before stabilizing for the rest of 1995.