No need for panic on Rupee' dip, RBI will take necessary action: FM

NEW DELHI: Finance minister P Chidambaram has called for an end to panic in the currency market pointing out that currencies all over the world are plunging. The government and RBI, he said, would act to stabilise the situation.

"We are watching the situation. RBI will take whatever action it has to take. We will (do) whatever has to be done," Chidambaram told reporters. "My request is you should not react in panic. It's happening around the world," he said.

His assurances seemed to work.

The Indian currency touched 59.98 against the dollar in intra-day trading before rebounding to close higher at 59.27 while Sensex closed 55 points higher after erasing early morning losses.

Most emerging market currencies have depreciated sharply against the dollar following concerns that the US Federal Reserve could start winding down its monetary stimulus soon. The rupee has been worsening because of the country's large current account deficit, which touched a record high of 5% of GDP last financial year. "We are unhappy (over) what's happening...But that's an impact that every currency in the world (is facing) because of certain announcements made by the US Federal Reserve," Chidambaram said.Analysts expect the Indian rupee to weaken further in the near term, as foreign investors are expected to pull out funds from emerging markets to invest in developed market bonds and equities, which look like better investments.

On June 21, foreign institutional investors net sold $870 million worth of bonds and stocks.

Chidambaram said the market had misunderstood US Federal chief Ben Bernanke's statement.

"It is my view that just as Mr Bernanke's statement was misunderstood a month ago, yesterday's statement (too was) being misunderstood," Chidambaram said adding that why should there be sell off in all the markets. "Obviously that money which is being pulled out from all emerging markets will ultimately have to find a place," he said.

FDI review in July

The Union Cabinet is likely to consider the proposal to increase foreign direct investment limits in various sectors in the third week of July. "FDI cap review may come up before Cabinet in third week of July," Chidambaram said in reply to a question on increase in FDI ceilings.

The government is looking to ease restrictions on FDI in a bid to attract capital flows to fund the large current account deficit.

A committee headed by economic affairs secretary Arvind Mayaram earlier this week proposed significant relaxation in FDI regime, including higher sectoral limits in many sectors, including defence, multi-brand retail and telecom.

The committee has suggested that the FDI limit be raised to 49% in almost all sectors through automatic route. At present only 26% FDI is permitted in defence. It has also suggested increase in FDI cap for the multi-brand retailing sector to 74%.