Enough reserves to deal with currency woes: RBI

New Delhi: The Reserve Bank today said it has adequate foreign exchange reserves to deal with the declining value of rupee and the widening current account deficit (CAD).

“I believe our forex reserves are adequate to manage current situation,” RBI Governor D Subbarao said in a response to whether RBI has enough firepower to defend the rupee, which plunged to an all-time low of 65.56 today.

The country’s foreign exchange reserves were up at $278.602 billion as of 9 August compared with $277.17 billion a week earlier.[caption id=“attachment_1053925” align=“alignleft” width=“380”]  RBI Governor D Subbarao. Reuters[/caption]

After breaching the 65 mark, the rupee made some recovery to settle at a fresh closing level of 64.55, still down by 44 paise today against the US currency on persistent dollar demand from banks and importers and sustained capital outflows.

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Subbarao also said the recent measures taken to curb volatility of rupee would continue till stability is restored.

“We have taken those measures again in order to curb volatility, in order to curb certain outflows, and we will revisit them as stability returns,” he said, clarifying that “RBI does not take any position on the exchange rate, we are not targetting a level of exchange rate.”

RBI took steps on 15 and 23 July to tighten liquidity.

These measures were taken to “raise cost of rupee resources at the short end which is in the arsenal of instruments available to central bank to defend against volatility in rupee”, he said.

On financing CAD, Subbarao said, “They have to come from FDI, FII, equities flow, FII debt flows and I believe the government has given those numbers that is the joint and shared effort of the government and the RBI.”

“Meanwhile, we have to be able to finance the CAD through stable and to the extent possible non-debt creating capital inflows. So that’s the effort now.”

What the current situation requires is structural measures, he said, adding, “We have structural CAD problem and that requires a structural response but structural measures by definition take time to play in and get the decisive results.”

Meanwhile, the central bank governor said that RBI has been focusing in the last three months especially in the last one month on undertaking stabilisation measures.

“We have to respond as and when necessary and we will continue to do so with the intention and the objective of curbing the volatility in the exchange rate,” he said.

Explaining the relationship between rupee depreciation and inflation, the governor said, “Latest RBI analysis shows that the elasticity co-efficient has increased, earlier we said that for every 10 percent depreciation inflation goes by one percent that co-efficient has increased since to 1.2 percent and pass through as indicated in the annual report is incomplete.”

Asked on why market getting confused signals, he said, “I do admit that since the situation is changing, changing rapidly every day and changing for reasons beyond our control because of external developments because of the sentiments being shaped by what is happening outside the country.”

“To some extent we are in reactive mode. As I said earlier sometimes we are anticipating developments, some time we are reacting to the some developments. That’s inevitable in situation like this,” Subbarao said.

PTI