The Reserve Bank of India (RBI) will only intervene in the currency market if pressure on the exchange rate is so great that it disrupts real sector activity, Subir Gokarn, deputy governor, Reserve Bank of India (RBI), said on Wednesday.
?Our view on exchange rate management has been the same. We do not target the exchange rate unless there is great pressure of any kind,? the deputy governor said. Gokarn was speaking on the sidelines of the annual conference of Ficci, on capital markets. On Tuesday, the rupee closed at R46.16 to the greenback, the lowest level since September last year. Between the start of August and now, the rupee has depreciated by 4.75% against the dollar with foreign institutional investors selling equities worth $1.7 billion during this period. Since January this year, when the rupee was at 44.70 levels to the dollar, the currency depreciated 3.3%.
Responding to a question on Swiss central bank?s move to set a ceiling on its exchange rate, Gokarn said, ?Switzerland has decided that the burden of capital inflows, as a result of the turbulence across the region, is putting pressure on the currency in a way which is disrupting the real sector. The Swiss central bank has reacted since the shock was showing up most visibly on the exchange rate. The deputy governor believes, however, that this could be a transitory phase and not, by any means, an abandonment of the floating exchange-rate system.
In the aftermath of the Swiss central bank imposing a ceiling on the currency?s exchange rate saying it will defend the target with the ?utmost determination?, the franc tumbled, dropping the most ever against the euro. Besides, the yen retreated against the dollar as Japan?s finance minister Jun Azumi said he will call for Group of Seven officials that ?excessive yen rises? are bad for the global economy.
The euro fell below its 200-day moving average against the dollar. Between January-early May 2011, the euro appreciated 13% against the greenback, primarily led by the bailout package for Portugal and Ireland, the risk rally supported by QE2 and ECB embarking on the rate tightening cycle much ahead of other developed economies.
Since early May, however, the euro has been range bound and traded with upper and lower bound at 1.45 and 1.40 levels against the greenback. The sovereign debt concern has shifted from the smaller economies, Greece, Portugal and Ireland to Italy and Spain.