RBI unlikely to intervene on rupee
The Reserve Bank of India (RBI) is not expected to intervene directly to support the rupee vis-a-vis the US dollar, economists have said.
By PTI |
MUMBAI: The Reserve Bank of India (RBI) is not expected to intervene directly to support the rupee vis-a-vis the US dollar, economists have said.
With inflation breaching the 6.5 per cent mark at 6.58 per cent last weekend, the apex bank's efforts to rein in inflation and excessive liquidity over the last one year through pure monetary measures has apparently not borne the desired result, they said.
Given its increasingly hawkish stance with respect to combating inflation, speculation is rife in financial circles that the RBI might resort to exchange rate management to shackle inflation, which is presently at a 25-month high.
"Rupee appreciation (through RBI support) will bring inflation down as imports will become cheaper, but then, exports could get affected as they will be costlier," Crisil director and principal economist D K Joshi told media.
While an appreciating rupee could make liquidity manageable, Joshi did not think the RBI would intervene directly to prop up the currency.
ADVERTISEMENT
Yes Bank's Shubhada Rao opined that the RBI would focus more on monetary measures and controlling inflationary expectations than on intervention in the forex market. "I don't think the RBI will actively support a rupee appreciation," she said.Apart from affecting exports, there could be other implications arising from an active support of rupee appreciation, Kotak Mahindra Bank treasurer Mohan Shenoy said. Pointing out that the apex bank had bought dollars to support the market at much higher levels, Shenoy contended that a rupee appreciation could result in the RBI's own balance-sheet getting hit.
He felt the rupee will continue to hover around the present level of Rs 44-45 to a dollar. Even if the RBI supported appreciation, it would be only to a limited extent, said Rao.
"Should the RBI decide to prop up the rupee, it will only be to a limited extent and perhaps bring the rupee to around Rs 43.70 or around that level. Exports will not be allowed to be affected," she averred.
ADVERTISEMENT
StanChart chief economist for South Asia Shuchita Mehta, however, said there has been an ongoing support for the rupee in recent times, though it might have been limited in extent."From the Rs 47 level in July, it is now close to 44," she said, adding, "There could be some usage of exchange rate mechanism to curb inflation but only to a certain extent."
ADVERTISEMENT
Economists feel that with the government's strong emphasis on maintaining the growth momentum as also to boost exports, a strong and direct intervention by RBI to prop up the rupee, barring exceptional circumstances, was unlikely.The RBI, if it does decide to resort to the exchange rate mechanism to bolster the rupee as a means to rein in inflation will have to perform a tight-rope walk as any drastic appreciation of the rupee will unduly disrupt the country's growing exports.
Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
Bookmark or read stories offline -
Download ET Markets APP
Download ET Markets APP
ADVERTISEMENT
