SME Times News Bureau | 12 Jun, 2013
Chief Economic
Adviser Raghuram G. Rajan
Tuesday said that large part of the decline in the value of Rupee in recent
days is because of dollar strength and these developments are under monitoring
of the government.
"There has been some volatility in financial markets in the last few
days. The Government, the RBI, and SEBI are watching market developments and
each one will take actions as warranted," Ranjan told the media.
The exchange rate has depreciated about 5.5% since January 1, 2013 at par
with Korea, Turkey and Brazil and much less than South Africa. Clearly
a large part of the decline in the value of the rupee in recent days is because
of dollar strength, he added.
Rajan pointed out that emerging market currencies across the world have
depreciated as debt outflows have increased, following the Fed's suggestion
that its asset purchases may be tapered down in September. My understanding is
that any tapering will be measured, but markets have reacted.
He stated that the decline in the rupee of 7.5% since May 1, 2013 has
been significant. However, this is only partly due to the debt outflows after
the Fedâs remarks. I say partly, because despite the debt outflows, portfolio
inflows between May 1 and June 10, 2013 have been significant.
"On net, India has received $4.162 billion in equity flows, and lost 486
million in debt outflows, for a net inflow of $3.675 billion," he added.
The Chief Economic Adviser
added that other reason for rupee weakening is that typically, the May 2013 Current
Account Deficit (CAD) is larger because of seasonal factors. Add on top of that
the increased gold purchases as gold prices dropped, and I think we have the
main reasons for rupee weakness.
He said that gold imports are declining and India's total exports are picking up. In
addition, oil prices have remained low. "So
there is good reason to believe that the process of narrowing of the Current
Account Deficit (CAD) will continue over the next few months," Ranjan said.