Amid a slide in the rupee, Union minister Arun Jaitley said on Wednesday that the country has adequate reserves to stem any undue volatility in the foreign exchange market. Nevertheless, the government was closely tracking the “unsettled international environment” to address any potentially adverse fallout of it.
“Recent developments relating to Turkey have generated global risk aversion towards emerging market currencies and the strengthening of the dollar. However India’s macro fundamentals remain resilient and strong,” Jaitley said in a series of tweets.
The rupee touched a record low of 70.09 against the dollar in early trade on Tuesday before reversing losses to settle at 69.9, slightly stronger than Monday’s close of 69.93. Concerns over Turkey’s economic woes, following its tension with the US, have adversely affected various emerging markets, with the dollar gaining strength against a number of currencies.
Foreign exchange reserves were at a healthy $402.70 billion in the week ended August 3, down $1.49 billion over the preceding week but $9.25 billion higher than a year earlier, according to the Reserve Bank of India data.
On Tuesday, economic affairs secretary Subhash Chandra Garg had also blamed “external factors” for the rupee’s fall, but added there was “nothing at this stage to worry about”, as such global factors may ease in coming days. Also, currencies of some other countries have fallen at a steeper pace than the rupee.
On Monday, Credit Suisse India economist and managing director Neelkanth Mishra had said the rupee was still the ninth-strongest among top 30 currencies.
Some analysts have argued that instead of using up forex reserves, India should raise money via NRI bonds as it did in 2013.
Bank of America Merrill Lynch chief economist Indranil Sengupta recently argued that a $30-35-billion issuance would change investors’ perception of the rupee and help stabilise it. He pointed out that all the three NRI issuances (1998, 2000 and 2013) had staved off contagion in the past.
The RBI’s stated position has been that it does not seek to target a particular level for the rupee’s exchange rate against the dollar, but uses the reserves to ease volatility in the currency market.
SBI chairman Rajnish Kumar has said: “I feel that it (rupee) should stabilise between 69 and 70 because if you look at the numbers for investment which is coming into the country – investment in bonds, investment in equities – this level has become attractive for foreign investment.”
According to some analysts, although the latest bout of rupee devaluation has been caused by the crisis in Turkey, other challenges like rising international oil prices and widening current account deficit from 1.9% in 2017-18 to an expected 2.7% this fiscal have also been weighing on the rupee.