Re fall due to global factors: Reddy

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Shillong, May 8 : With rupee falling to a one year low in the past three days, RBI Governor YV Reddy on Thursday said the situation is reflective of the “global uncertainities”.

The uncertainties “were flagged and analysed in the RBI policy statement last week. We have discussed the impact of the uncertainties on India,” Reddy said after a board meeting of the RBI here. Though the Governor did not specify the “uncertainties”, he was inevitably pointing at the rising oil prices and slowdown in capital inflows. The rupee hovered near a one-year low of 41.69/70 against the US Dollar on Thursday, as record oil prices drove up demand for the greenback from refiners and other importers, and fund inflows into a tepid stock market slowed.

Close on the heels of the currency fall, the current account deficit is likely to deteriorate marginally from the consensus estimate, Reddy said. “The widening of trade deficit due to the oil prices could be bridged by capital flow, which, despite showing a decreasing trend, can comfortably finance the deficit.”

Oil, India’s biggest import, traded above $123 a barrel close to its record high hit on Wednesday. Reddy also underlined the need to strengthen finance and banking sector in the Northeast. “We have discussed ways to activate the finance and banking sector in the region, particularly the problems of land acquisition certificates, rural banking and smart cards,” Reddy said. Official sources said the board also deliberated ways to rein in inflation and check the volatility, besides discussing the impact of recent policy measures announced by the central bank in the backdrop of the current economic growth.

RBI, in its annual credit policy announced last week, raised the percentage of cash that commercial banks must keep in reserve.

It was the second time in less than two weeks that RBI raised the Cash Reserve Ratio to combat an average annual inflation rate of over 7.5%.