With the rupee continuing its free fall, the Reserve Bank of India,on Thursday, indicated that it might sell dollars directly to oilcompanies to ease pressure on the currency. RBI Governor D. Subbarao, in his interaction with media after theboard meeting, also hinted at the possibility of issuance ofoverseas sovereign bonds to deal with the balance of paymentsituation. "The RBI will do whatever is necessary. Some structuralchanges are necessary for improvement in current account.Meanwhile, the RBI is monitoring the situation and we will dowhatever is necessary, consistent with our policy," he said. |
Direct sale of foreign exchange to oil marketing companies, Dr.Subbarao said, "has been an issue on the table. I am notruling it out. I am also not saying that we are going to do itright know. It's an open issue. We have done it in the past.
At themoment, we have not done it so far." Several experts, including C. Rangarajan, Chairman of the PrimeMinister's Economic Advisory Council (PMEAC), have suggested thathe RBI should consider selling foreign currency to oil companies asthey withdraw huge amounts to buy crude in the internationalmarket. As regards the sovereign bonds, the RBI chief said, "I cannotsay in favour or out of favour. We have done it in the past, itmight be done in the future... but it's not something that is beingcontemplated right now." India in the past had raised funds from overseas markets fromissues such as the Resurgent India Bonds to tide over the balanceof payment problems.
After losing ground three days in a row, the rupee, on Thursday,touched its lifetime low of 56.38 to a dollar but recovered toclose at 55.65 after Dr. Subbarao's press conference. Since March 1, the rupee has lost over 13 per cent and 11 per centsince the presentation of the budget on March 16 in the face ofwithdrawal of funds by foreign investors from stock markets. Thebudget contained proposals such as retrospective taxation andgeneral anti-avoidance rules (GAAR), which impacted foreignportfolio investment.
Pointing out that the rupee had beendepreciating over the last 3-4 months, Dr. Subbarao said,"the RBI is continuously monitoring the situation. We havetaken action through current account flows, encouraged inflows andalso (steps) to curb speculation.' The movement of the rupee, Dr. Subbarao said "is a functionof external situation as well as development in current account andcapital account and balance of payments.' Replying questions on the price situation, Dr.
Subbarao said thedeterioration in inflation had been mainly on account of rise inprices of food items. "We noted that inflation has been asurprise upside for April. We also noted that increase has been onaccount of food inflation," Dr. Subbarao said, adding thatthe central bank would take into account recent developments whileannouncing its mid-quarterly policy review on June 18.
Inflation, represented by the wholesale price index, rose to 7.23per cent in April from 6.89 per cent in the previous month, whileretail price inflation (CPI) entered double digits of 10.36 percent in April (9.38 per cent in March). "Core inflation, which is non-food manufacturing (items), hasremained below 5 per cent. So in our next mid-quarterly review, wewill take into account the numbers which have come after ourmid-April statement. We will consider how the inflation scenariohas evolved.
We will take into account the growth statistics andtake a decision," Dr. Subbarao said. Pitching for reduction of fiscal deficit, Dr. Subbarao said, it wasnecessary to contain inflation.
"Our views are quite well known on fiscal deficit. We havesaid that fiscal consolidation is important and very necessary forinflation to come down. So we have said that in our annual policystatement last month that the government must deliver on thebudgeted fiscal deficit target," he said. Because of various global and domestic factors, the fiscal deficitof the Central Government during 2011-12 soared to 5.9 per cent ofthe Gross Domestic Product (GDP) as against the target of 4.6 percent. The government proposes to bring it down to 5.1 per cent ofGDP in 2012-13.
The current account deficit, which is the difference betweeninflows and outflows of foreign exchange, rose to 4 per cent of GDPat the end of December, 2011, as against 3.3 per cent during2010-11. On the volatility in stock markets, Dr. Subbarao said, "theRBI does not follow the stock market. We look at the stock marketfor understanding the macro-economic situation, but I cannotcomment on stock market movements.".
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