Bangalore: Amid the rupee falling below the 56-level Thursday, Prime Minister's Economic Advisory Council Chairman C Rangarajan said the exchange rate of the local currency will be determined by the capital flows.
"My view is that ultimately the value of the rupee will depend on the current account deficit and the capital flows. But the capital flows have been adequate so far to cover the current account deficit," Rangarajan said.
He was speaking at an event organised by the Bangalore Chamber of Industry and Commerce.
The country's Current Account Deficit (CAD) hit a record high of 6.7 percent of GDP in Q4 2012 and is expected to narrow to 4-4.5 percent of the GDP in the first quarter of this calendar year.
"Over the years, I believe that exchange rate of the rupee will be around the level we have seen in the last month or so," he added.
However, pressure can develop on occasions because of the mismatch between the current account deficit and the capital flow, Rangarajan said.
After sinking below 56-mark in early trade on heavy dollar demand, the rupee Thursday erased some losses but still ended 13 paise lower at fresh six-month low of 55.59 amid signs of capital inflows in battered equities and exporters selling the American currency to book profits.
When asked if there was any pressure on the capital flows, he said: "I dont think so. Indian economy is still the fastest growing economy in the world. Therefore, capital flows will come to India."
FIIs have pumped in around USD 13 billion in Indian equities so far this calendar year.
Current Account Deficit occurs when a country's total imports of goods, services and transfers is greater than the country's total export of goods, services and transfers.
First Published: Thursday, May 23, 2013, 23:27