No fear on Indian rupee, have ammunition to counter US Fed action: FinMin

Sep 23 2013, 14:28 IST
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India has close to $270 billion of foreign reserves with the RBI. India has close to $270 billion of foreign reserves with the RBI.
SummaryThere is no room to be fearful of Indian rupee taking a tanking again, says Arvind Mayaram.

There is no room to be fearful of Indian rupee taking a tanking again when US Federal Reserve decides on tapering of its stimulus programme as the government has enough ammunition in its hand to deal with the situation, a top finance ministry official said today.

"I do believe when tapering happens then there will be outflow of capital but the fact also remains that we have enough ammunition in our hand... And therefore there is no room to be fearful of rupee taking a tanking," Department of Economic Affairs Secretary (DEA) Arvind Mayaram said at an event here.

Elaborating further, Mayaram said, "We have close to USD 270 billion of foreign reserves with the RBI, close to USD 40 billion additional inflow of capital this fiscal year, a USD 50 billion swap arrangement with Japan."

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He also said a USD 100 billion contingency fund has been signed by BRICS countries.

The US Federal Reserve last week surprised the markets by saying it will continue with its monthly USD 85 billion bond buying programme and wait for more evidence of growth recovery before thinking of unwinding the stimulus.

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Expectations that the stimulus programme would be tapered had led to fears of capital outflows, causing the rupee to depreciate against the dollar and stocks to fall.

On rupee, Mayaram said the intrinsic value of the rupee is between 58 and 60 against the dollar.

"There is something called intrinsic value of rupee. The intrinsic value of rupee comes from its purchasing power. The intrinsic value of rupee in Real Effective Exchange Rate (REER) term could be somewhere between 58-60," he said.

Mayaram expressed confidence that Foreign Direct Investment (FDI)inflows into India in the current fiscal would be around USD 36 billion.

"This year in the first quarter, the net FDI flow in the country has been USD 9 billion, which is 70 per cent higher than FDI inflow in the first quarter of the last fiscal. If that trend continues, then I have no doubt, FDI inflows in the country will be USD 36 billion," he said.

Department of Economic Affairs Secretary also said the government will be able to save around USD 1 billion as bulk diesel

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