Bloomberg News

Rupee Decline in ‘So Short a Time’ a Concern, Gokarn Says

September 26, 2011

(Updates with analyst’s comment in fifth paragraph.)

Sept. 26 (Bloomberg) -- The decline in the Indian rupee in “so short a time” is a concern that reflects volatility in global financial markets, Reserve Bank of India Deputy Governor Subir Gokarn said.

Sharp movements in the currency can be disruptive and tend to trigger panic, he said in a speech in Washington yesterday. India has not intervened with an exchange-rate target in mind for a long time and there are no plans to change the policy, he said.

“It is a matter of some concern that we depreciate so much in so short a time but we have to put that into perspective,” Gokarn said. “This is a global phenomenon. There is nothing specific in the country that is driving this process.”

Asian currencies had their biggest weekly drop since 1998 last week as concern the global economy is headed for a recession dimmed the outlook for exports and prompted investors to favor safer bets than emerging-market assets. India’s rupee had its worst week in 18 years.

“The volatility is so high that the central bank will have to strongly intervene to arrest slide in the rupee,” said Roy Paul, a Mumbai-based deputy general manager of fixed income and currencies at Federal Bank Ltd.

India’s currency today weakened as much as 0.5 percent to 49.67 per dollar and was trading at 49.40 at 10:35 a.m. Fifty “may be a critical level, which the RBI may not allow to breach easily,” Paul said.

G-20 Coordination

The rupee has declined 6.8 percent this month even as the Group of 20 economies sought to quell the turmoil in financial markets.

“We do see that very sharp movements intra-hour or intra- day can be disruptive,” Gokarn said. “They tend to trigger panic, entry or exit. In that situation, we feel that there is some merit in smoothing, infusing dollars to ensure that movement is moderated. That is something we would consider.”

Inflation in India “remains high” and will probably remain in a range of 9 percent to 10 percent until November, Gokarn said.

The Reserve Bank boosted India’s repurchase rate for the sixth time this year on Sept. 16, raising benchmark borrowing costs 25 basis points to 8.25 percent as policy makers seek to tame the fastest inflation among the biggest emerging markets. Indian wholesale prices rose 9.78 percent from a year earlier in August.

Economic indicators are signaling a slowdown in growth, Gokarn said. India’s $1.7 trillion economy expanded 7.7 percent in the three months ended June 30 from a year earlier, the slowest pace of growth since the last quarter of 2009.

“All of the momentum indicators are showing signs of moderation,” the deputy governor said. “Tax collections are starting to ease off. When we track growth, it’s clearly come down to below 8 percent.”

--With assistance from Kartik Goyal in New Delhi. Editors: Kevin Costelloe, Brendan Murray

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net


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