Worst may be over for the rupee: Rangarajan
The worst may now be over for the rupee and it could stabilise at the current 65 to 66 a dollar level, the Prime Minister's top economic adviser C Rangarajan has told NDTV.
Dr Rangarajan said, "I believe at the present level the Rupee is well corrected." Prime Minister Dr Manmohan Singh and Finance Minister P Chidambaram have stressed in the last fortnight that the rupee has overshot its true level.
Dr Rangarajan did however say that much would depend on the turn the Syria crisis takes.
The rupee is among the worst performing currencies in Asia. It has fallen nearly 20 per cent since May this year, getting alarmingly close to the 69 levels last week. Yesterday, after RBI Governor Raghuram Rajan announced a new action plan to rescue the currency, it pulled back to 66 levels and has been trading at those levels this morning too.
Here is what Dr Rangarajan told NDTV on the rupee:
Question: At what levels will the rupee stabilise?
Answer: At what levels it is very difficult to say, but I believe at the present level the rupee is well corrected. Now what is the word corrected mean, we can only at it in terms of a base year and see whether the exchange rate of the rupee has been adjusted for inflation differential between India and other countries. If you take 2004-2005 as the base, the calculations made clearly indicate that somewhere about 62-63/$ it is well corrected therefore anything beyond that is result of whereas other forces operating in the system. I believe that rupee can stabilise and even strengthen from the current position as capital flows come in. So we are on the road to stabilisation.
Question: Is the worst over for the rupee?
Answer: I think so. In some sense the value of the rupee in the foreign exchange markets is not only determined by our own actions by also what is happening in the rest of the world, over which we have no control. If the Syrian crisis takes a serious turn, I do not know what impact will it have, capital flows can be affected. But barring these, I see stabilisation happening. It can stabilise around the current level and if capital flows come in it can further strengthen.