FM: Rupee undervalued, but no need for ‘unwarranted pessimism’

FM:  Rupee undervalued, but no need for ‘unwarranted pessimism’
Highlights

Reacting to the falling rupee in the last five trading, the Finance Minister P Chidambaram sought to assuage the investors asserting that there is no need for ‘excessive and unwarranted pessimism’. He felt that the currency is undervalued and has overshot appropriate levels.

Assures that stability will return to currency markets as govt will continue to promote investment, growth

New Delhi (PTI): Reacting to the falling rupee in the last five trading, the Finance Minister P Chidambaram sought to assuage the investors asserting that there is no need for ‘excessive and unwarranted pessimism’. He felt that the currency is undervalued and has overshot appropriate levels.

After maintaining silence for a week, Chidambaram met media on Thursday, a day when the rupee breached 65-mark against dollar, to assert that there was no cause for panic. He further assured that stability will return to currency markets as government continues to promote investment and growth. "We believe that rupee is undervalued and has overshot what is generally believed to be a reasonable and appropriate level," he said.

Early in the day, the Finance Minister held three-hour long discussion with RBI Governor D Subbarao and his successor Raghuram Rajan. Chidambaram said, "We are confident that stability will return to these markets and we can get on with the task of promoting investment and growth." The Finance Minister said the recent steps taken by the Reserve Bank to reduce volatility in forex market and quell speculation would be revisited.

Subbarao in a separate media briefing said India has adequate forex reserve to meet the current situation and the central bank will take appropriate measures to curb rupee volatility. However, Chidambaram clarified that there was no move to introduce any capital control measures to check CAD. "There was -- and is -- no intention to introduce any type of capital control, including controls on repatriations. It is not the policy of the government or the RBI to resort to capital control or reverse the direction of capital account of liberalisation. The measures that were taken last week will be revisited as stability returns," Chidambaram said.

To restrict outflows of foreign currency, the RBI on August 14 announced stern measures, including curbs on Indian firms investing abroad and outward remittances by resident Indians. Chidambaram hoped that capital inflows in due course will correct the position of rupee. He said, with the increase in FDI inflows by over 70 per cent in the first quarter and exports putting up better performance, there is a slight improvement in the current account deficit (CAD).

"CAD is narrower. We are exploring structural measures to further reduce CAD to sustainable levels and, in the mean time, to improve capital flows," he said, adding that the growth promotion will continue to be the focus of the government. Giving numbers to substantiate his version, Chidambaram said, "The overall public debt to GDP ratio has declined from 73.2 per cent in 2006-07 to 66 per cent in 2012-13. The economy's external debt is only 21.2 per cent of GDP, forex reserves are $277 billion," he said.

Growth flat in Q1, may pick up in coming quarters

New Delhi (PTI): Admitting the Indian economy is challenged, Finance Minister P Chidambaram said the country's economic growth is likely to remain flat in the first quarter of the current fiscal, but is likely to pick up in the remaining three quarters.

"Thanks to the global slowdown as well as some domestic factors, the Indian economy is challenged. We expect that the growth trend will remain flattish in the first quarter of the current fiscal," Chidambaram said. "We expect that growth will pick up in the second quarter to fourth quarter," he added. Finance Minister said growth in the remaining three quarters will pick up on back of increase in sown area by about 9.1 per cent, acceleration in Plan expenditure and impact of the projects cleared by the CCI in last few months. India's GDP growth in first quarter of last fiscal was 5.5 per cent. The country's economic growth has slowed down to 5 per cent in the last fiscal year, the lowest in a decade, on account of poor performance of manufacturing, agriculture and services sector.

Rupee plunges to new low of 65.56, recovers to end at 64.55/$
Mumbai (PTI): The rupee remained in the doldrums for the sixth session in a row today as it breached the 65 mark to an all-time intra-day low of 65.56 before recovering to settle at 64.55 against the dollar, still down 44 paise. Even as local stocks recovered, the rupee's declined on dollar sales by exporters and capital outflows. Steps taken by the Reserve Bank and the government to curb volatility in the exchange rate appeared to have had little effect.
The dollar strengthened overseas after minutes showed the U.S. Central bank remains on course to start trimming its stimulus before the year end. The dollar index, consisting of six major global currencies, was up 0.32 per cent. At the interbank foreign exchange market, the rupee resumed weaker at 64.85 a dollar from the previous close of 64.11 and crossed the 65 mark to a historic low of 65.56. It recovered some ground and ended at 64.55, still a fall of 44 paise or 0.69 per cent. In six straight sessions, the rupee has tanked by 336 paise or 5.49 per cent.
Meanwhile, the rupee recovered slightly to 100.50 against the pound sterling from 100.57 and also rebounded against the Japanese yen to 65.41 per 100 yen from 65.81. However, it eased further against the euro to 85.94 from previous close of 85.85.
Gold, silver climb as rupee tumbles
New Delhi (PTI): Gold prices surged by Rs 625 to Rs 31,750 per ten grams in the national capital on Thursday on weakening rupee amid stockists buying ahead of festive and marriage season. On similar lines, silver spurted by Rs 1,745 to Rs 51,900 per kg on increased offtake by jewellers and coin makers. Traders said free-fall in rupee which tumbled to a historic low of 65.53 (intra-day) increased speculations that it would make precious metals import costlier. Besides, a firming global trend and stockists buying for coming marriage and festival season further supported both the precious metals.
On the domestic front, gold of 99.9 and 99.5 per cent purity surged by Rs 625 each to Rs 31,750 and Rs 31,550 per 10 grams, respectively. Sovereigns followed suit and rose by Rs 200 to Rs 25,100 per piece of eight grams. In a similar way, silver ready recorded a sharp gain of Rs 1,745 to Rs 51,900 per kg and weekly-based delivery by Rs 1,685 to Rs 51,540 per kg. Silver coins also raised by Rs 3,000 to Rs 88,000 for buying and Rs 89,000 for selling of 100 pieces.
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