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.