Foreign exchange intervention involves costs: RBI

Intervention in the foreign exchange market to stem sharp appreciation in currencies has costs, Reserve Bank of India Governor Duvvuri Subbarao said on Wednesday.
  • Language
  • App
  • Subscriptions
  • Specials
  • Sign-In
  • Register
Real-time Stock quotes, portfolio, LIVE TV and more.
GeStepAhead SME Special
moneycontrol.com

Home » News » Economy

Oct 27, 2010, 07.59 PM | Source: Reuters

Foreign exchange intervention involves costs: RBI

Intervention in the foreign exchange market to stem sharp appreciation in currencies has costs, Reserve Bank of India Governor Duvvuri Subbarao said on Wednesday.

Like this story, share it with millions of investors on M3

Foreign exchange intervention involves costs: RBI

Intervention in the foreign exchange market to stem sharp appreciation in currencies has costs, Reserve Bank of India Governor Duvvuri Subbarao said on Wednesday.

Post Your Comments

Share Cancel

Foreign exchange intervention involves costs: RBI
Intervention in the foreign exchange market to stem sharp appreciation in currencies has costs, Reserve Bank of India Governor Duvvuri Subbarao said on Wednesday.

Buying dollars adds liquidity to the banking system, which aggravates inflation. Sterilising resultant liquidity can push up interest rates, which in turn attracts further inflows, the Reserve Bank of India governor said.

"Managing currency tensions will require a shared understanding on keeping exchange rates aligned to economic fundamentals, and an agreement that currency interventions should be resorted to not as an instrument of trade policy but only to manage disruptions to macroeconomic stability," Subbarao said.

Since the start of September, the rupee has risen by nearly 6% on the back of USD 11.7 billion in foreign fund inflows in stocks, attracted in part by the country's largest ever IPO, a USD 3.5 billion share sale by Coal India .

The Group of 20 advanced and emerging economies agreed on Saturday to move towards market-determined exchange rates and to pursue the full range of policies needed to reduce excessive external imbalances.

Ultra-low interest rates in developed markets have sent a flood of funds to higher-yielding emerging markets in search of higher returns, putting upward pressure on currencies and prompting several countries to impose capital controls.

The rupee, which hasn't gained as much as its Asian peers this year, has risen by 4.6% in 2010, helped by a record USD 24.7 billion foreign fund inflows into equities. In 2009, net equity portfolio inflows were USD 17.5 billion.

Subbarao said managing capital flows is not a problem that should be managed only by emerging market economies.

"In as much as lumpy and volatile flows are a spillover from policy choices of advanced economies, the burden of adjustment has to be shared," Subbarao said.

He also said that it is unrealistic to expect emerging market economies to carry the full burden of lifting global growth.

Ads by Google

Buy, Hold, Sell ? Hear it first on M3
Foreign exchange intervention involves costs: RBI

See all

Get started using your favorite social network

or

Login using moneycontrol ID

Username
Password

Need help logging in? Reset password.

Don´t have an account? Sign Up

Get started using your favorite social network

or

Simply sign up using this short form

* mandatory

UserName*

Username should be atleast 4 character

Password*

Password should be 8 or more characters,
atleast 1 number, 1 symbol & 1 upper case letter

Alert

Your Password should contain
  • 8 or more characters
  • At least 1 number
  • At least 1 symbol
  • At least 1 upper case letter
Confirm Password*
Email
Already have an account? Login