The central bank's intervention has paid off! Rupee regained its footing after an initial fall to over 54 to a dollar, finally closing at 53.78 to the dollar.
The finance ministry, meanwhile, blamed the recent weakness in the Indian currency on high current account deficit, slowdown in foreign inflows and the Eurozone crisis.
However, the government is not taking any action just as yet. Finance ministry sources say a knee-jerk reaction to the rupee is unwarranted, and they need to consistently watch the rupee movement since this could just be a short-term fluctuation. “We expect the rupee to recover after its recent plunge,” the official told the channel.
CNBC-TV18 learns from finance ministry sources that the government believes that in order to manage rupee, it needs to turn around sentiment for higher capital flows. “With inflation at current levels, we see rupee remaining at 52-53 to a dollar,” the official added.
While the government thinks that country's macro economic fundamentals remain strong, it will look at issues like FDI in retail and diesel deregulation post parliament session in order to boost sentiment.
The finance ministry also expects GAAR postponement impact to show up in sentiment.