Rupee's volatility is the immediate cause of worry: PM

By Agencies | 19 Jul, 2013, 10.41AM IST Economic Times

NEW DELHI: Seeking to allay the growing apprehension that the Reserve Bank of India (RBI) may hike interest rates in its monetary policy review on July 30, Prime Minister Manmohan Singh on Friday said that steps taken by the central bank to stabilise rupee do not signal a rise in rates.

"RBI has done its job to stabilise forex markets," he said. "Short term pressures on the economy need to be contained," he added. According to Singh, the immediate cause of worry is the volatility of rupee.

Admitting that the Indian economy is going through a difficult phase, Singh emphasised the need to reduce demand for gold and petroleum. "We are committed to bring Current Account Deficit under control," he said.


Earlier in the week, Finance Minister P Chidambaram said the CAD was financed last fiscal without dipping into the foreign exchange reserves and this year it would be contained below the 2012-13 level of 4.8 per cent of the GDP.

"At the end of the year (2012-13) not only we financed the CAD, we also added $3.8 billion to our reserves. This year, the CAD looms large. "We are doing our sums and we are confident that with some stern measures that we have taken and we will take, we can contain the CAD to a level below last year's CAD. We will finance it fully and safely without running down reserves," he said.

On measures taken by the RBI to arrest decline in value of rupee, Chidambaram said, they are intended to "quell excessive speculative activity" in the foreign exchange market and to stabilise the rupee.

"These measures are for short term and certainly these measures should not be interpreted as a prelude or precursor to some kind of tightening of policy rates. I am confident that the rupee will stabilise. We are targeting a level for the rupee...we want volatility to be contained", he added.

A stable rupee, the Minister said, was also necessary at a time when businesses are attracting investments and building good infrastructure with a view to making the country a base for large and diversified manufacturing activity.