Ahluwalia downplays rupee concerns, says defending currency not worth the risk

Montek Singh Ahluwalia, the deputy chairman of the Planning Commission, on Wednesday downplayed worry about the recent decline in the rupee and said trying to defend the currency is not worth the risk it would pose to the country’s reserves.

“There is nothing wrong in rupee depreciating,” Ahluwalia said. “The alternative would be to try and fix the rupee and lose our foreign reserves,” he said at an event. India had foreign exchange reserves of nearly $307 billion as of earlier this month.

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The rupee is down more than 16 percent since July peaks and is Asia’s worst-performing currency this year, although it has bounced off record lows hit last week after the central bank took steps to prop it up.

The Reserve Bank of India does not set a target level for the rupee but it does occasionally step into the currency markets in order to ease volatility. The local currency has been weighed down by investor worries about India’s ability to tame high inflation, bolster growth, and curb worsening fiscal and current account deficits, as well as poor global risk appetite amid the European debt crisis.

India’s economic deceleration is expected to continue in the third quarter of the current fiscal year ending in March 2012, Ahluwalia said. India’s gross domestic product growth fell to 6.9 percent in the second quarter of the financial year, slipping below 8 percent for the third straight quarter. Some economists expect India will struggle to reach 7 percent growth in the current fiscal year after the economy grew 8.5 percent the previous year.

Reuters