Recent RBI moves don't amount to capital control: Sources

Despite the market reaction today (Friday), finance ministry sources reiterate that recent RBI measures don’t amount to capital control, reports CNBC-TV18’s Siddharth Zarabi. The latest update from the North Block is that there will be no further formal briefings either of the Secretary of the Economic Affairs Ministry or perhaps any other official.

Also read: Why RBI curbs are a downer for India Inc and investors Sources have given two clear cut messages from the North Block. First, the acknowledgement that one cannot endlessly do whatever they have been doing and therefore there is a clear indication of a shift in stance. Secondly, the kind of battle to control the rupee’s freefall in 1997 under Bimal Jalan is also not possible. That time the key driver of that was curbing liquidity in the system, infact choking of liquidity in the entire system. Overnight call rates went up to 62 percent, in that kind of a scenario, Finance Ministry officials are saying that move is not warranted. If one looks at the volumes of trade whether it is the rupee or the overall size of the economy, we have moved far-far ahead. Around four weeks back the government, public policy made its priority known that defending the economy or trying to defend the rupee to a certain extent and managing its freefall was a clear-cut important strategy. Now indications apart from the politics of it are that is not something that will be done endlessly. There is also a sense of acknowledgement that certain measures are temporary and can be rolled back. At this stage it is very clear is that while the situation on the rupee is being monitored, at the highest levels there has been a meeting at the Prime Minister’s Office. Earlier in the morning it was made very clear that public policy is attaching a lot of importance that is happening to the markets. But there is no drip-by-drip commentary or decisions that are expected. Now there will definitely be a decisive shift in stance as far as measures are concerned. The indication is that liquidity may not be further choked, but so far whatever has been done will be allowed to play out in its due course. The bottom-line is the lesser you do and the lesser you speak perhaps will drive a more sense into the market. The common refrain and the belief that is emanating from Delhi is that all of these are external factors. As long as the economic fundamentals in India are going to be shaped up and return to a positive growth trajectory, everything will find its place.