Domestic, global factors behind recent fall in Rupee: RBI Governor Duvvuri Subbarao

MUMBAI: The sharp depreciation of the rupee over the last few months was driven by a combination of global as well as domestic factors and the future exchange rate movement will depend on fixing these issues, RBI Governor Duvvuri Subbarao said here today.

While the high current account deficit, higher trade deficit driven by rising imports, led by gold and oil, are the domestic factors, the ongoing euro-zone crisis is one of the crucial international issues responsible for the rupee depreciation, he said.

"While the rupee depreciated in the August-December period of last year due to global factors, the depreciation from March till date is due to both global as well as domestic factors," Subbarao told an event organised by the Indian Merchants Chamber here this evening.

Drawing a comparison between the currencies in the BRIC bloc, he said the Brazilian real has witnessed the largest depreciation followed by the rupee during this period.

Subbarao said that growing current account deficit, the relative inelasticity of imports and high inflation have negatively impacted the rupee.

In FY2011-12, while exports sniffed at USD 304 billion, imports crossed USD 486 billion, out of which USD 155.6 billion were crude and USD 66.1 billion were gold imports.

The governor also pointed out that the central bank has taken various measures like increase in FII limits in G-Secs and corporate debts, deregulation of interest rates on NRE and NRO accounts and deregulation of ceiling rate on export credit among others to attract capital inflows in its bid to arrest the fall of the tottering rupee.

The rupee today closed at 55.96 to the dollar after breaching the 56 level on the back of slowing capital inflows coupled with dollar demand. The domestic unit has lost over 23 per cent to date, becoming the worst currency in the Asia Pacific region.

About RBI intervention to support the rupee, Subbarao said the central bank's stated policy intervention is to check volatility and not to support any exchange rate level.

"The RBI's policy intervention is only to smooth volatility and steep movements and this has worked for us till now and we will continue with that," he said.

About possible appreciation of the rupee going forward, the Governor said capital inflows, import restraints and higher exports along with solution to the euro-zone problem will determine the exchange rate movement in the near future.