Despite several attempts to curb the currency volatility, the rupee has been on a rampage the past few weeks, slicing through important support levels and hitting fresh lows day after day.
RBI governor D Subbarao today said that they have taken action to encourage inflow of dollars and curb speculation, and that they will do whatever is necessary going forward. According to him, the rupee’s movement is a function of the external situation and the current account deficit (CAD).
“We are continuously monitoring the rupee, and we believe structural changes are necessary to correct the CAD,” said Subbarao, adding that steps on the rupee will be taken which are consistent with policy.
One such option that the central bank has not ruled out is a separate dollar window for oil marketing companies. “Issue of a special dollar window for OMCs is on the table,” said the RBI governor.
Experts believe that the demand for dollar by OMCs for their import requirements is what is putting pressure on the currency market.
Subbarao goes on to say that they are not contemplating a sovereign bond issue as of right now. “A sovereign bond issue has been done in the past and can be done in the future,” he said.Rupee freefall: Here are five things you may want to know
The inflation menace
Apart from rupee troubles, the central bank has also been plagued by high inflation for the past several quarters. During its policy review in April, the Reserve Bank cut key repo rates by 50 basis points, but going forward, Subbarao says fiscal consolidation is important to tame inflation.
“Government needs to deliver on budgeted fiscal gap aim because fiscal consolidation is very important and very necessary,” he said.
Subbarao points out that inflation has been on the upside for most of April mainly due to food prices, which have been on the rise.
He further adds that the RBI will take into account economic data that came out post their last policy meet while deciding on rates in the future. “Decision on rates are tied to the growth-inflation dynamics,” he explained.
Inflation for the month of April came in higher than expected at 7.23%, led higher by food, fuel and manufacturing inflation.
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