RBI Governor Duvvuri Subbarao refuses to step in to check Rupee’s fall

MUMBAI: The Reserve Bank of India said that it will not buy US dollars from the currency market to boost the foreign exchange reserves even as the coverage of imports and external debt fall to multi-year lows.

The central bank will not intervene in the market with a target for the currency as it believes the rupee should find a level based on demand and supply irrespective of the size of the cover, Reserve Bank of India Governor Duvvuri Subbarao told economists and analysts.

“On whether we will intervene to increase the foreign exchange reserves, the answer is no,” said Subbarao in response to an economist’s question on reserves cover for imports falling to 90s levels.

“We do not believe that we should intervene in the market just to build up reserves as self insurance. Reserves is an incidental by-product.’’

The Indian currency that was the best performing currency a few months ago has turned weak again as the demand for US dollars remain strong due to oil and gold imports.

With the RBI not saying whether it stands for a strong, or a weak currency unlike others such as the Swiss National Bank, or the Bank of Japan the market has taken Rs 54 to the USD as an unwritten Lakshman Rekha for RBI intervention.

The Indian rupee is now swinging in the rage of Rs 51 to Rs 54 to the US dollar, up from the record June low of Rs 57.32. The Indian rupee has fallen 4.8% to the greenback in the September quarter after depreciating 9.3% in June quarter.

Last year it fell 6.8% making it among the worst performing currency in Asia Since the import cover has fallen to the 90s low,“there is a need to augment forex reserves,’’ Indranil Sengupta at Bank of America Merrill Lynch told the Governor during the call.

“In a sense that we are in a chicken and egg situation probably waiting for the rupee to stabilise and the market does not venture beyond the point because it thinks that RBI will start buying.’’