Fin Min says rupee on stronger footing, assures stability in markets

The Finance Ministry on Thursday said the government and RBI are vigilant and all steps will be taken to ensure stability in financial markets.

PTI| Updated: Jan 30, 2014, 19:45 PM IST

New Delhi: Asserting that the rupee is on a much stronger footing now, the Finance Ministry on Thursday said the government and RBI are vigilant and all steps will be taken to ensure stability in financial markets in the wake of the US Fed's decision to further trim its monetary stimulus.

"As long as it (the value of rupee) is range-bound, which is what we believe it will be, I do not think it should be a matter of concern. I don't think there should be a speculation on the rupee, which is backed by very strong macroeconomic fundamentals," Economic Affairs Secretary Arvind Mayaram told reporters.

The rupee in early trade was inching towards 63 to a dollar on fears of capital outflows in the wake of further tapering of bond purchase in the US, but the local currency later recovered to end the day at 62.56.

The BSE Sensex slipped over 225 points intra-day, but recouped some lost ground to close at 149 points lower.

"The rupee breaching 63 is not a matter of concern. If it breaches 63 and then pulls back then it is range-bound because these are normal market operations," Mayaram said.

Stating that the current account deficit (CAD) would be below USD 50 billion this fiscal and the country has foreign exchange reserves of USD 259 billion, he said "the rupee in that sense stands on much, much stronger footing. I don't think there is much reason to be concerned".

A Finance Ministry statement said the government and the Reserve Bank will continue to remain vigilant and will take whatever steps are necessary to ensure that there is stability in financial markets.

The US Federal Reserve yesterday decided to cut its bond purchases further by another USD 10 billion. It has decided to purchase USD 65 billion per month of mortgage backed securities and longer-term treasury securities as against USD 75 billion per month earlier.

The Fed announcement in May that it would taper bond purchases had sent markets world-over into a turmoil. The rupee had fallen continuously and hit its life-time low of 68.85 in August last year.

The Finance Ministry said the US Fed decision was expected and should not in anyway surprise or affect Indian markets. However, it may be noted that USD 65 billion is not a small sum.

The Ministry reaffirmed that the Indian economy is better prepared for consequences, if any, of the US tapering.

Mayaram said the economy has emerged out of the trough and the government will rein in fiscal deficit at 4.8 percent of GDP in the current fiscal.

The statement further said the FDI and FII inflows into the country remained strong and there has been an accretion to the foreign exchange reserves which stood at USD 295 billion.

The current account deficit (CAD) is now expected to be below USD 50 billion in 2013-14 and therefore there should be no undue concern over external factors, it said.

The CAD was at a record high of USD 88.2 billion or 4.8 percent of GDP last fiscal.

The statement further said the Federal Reserve has not announced a sequential taper and has made it clear that "asset purchases are not on a pre-set course" and that they will take "further measured steps at future meetings."