FM: RBI keeping tab on fall of rupee

PSU banks will be adequately capitalised
Last Updated 19 November 2011, 18:56 IST

“The RBI is keeping an eye on it. They are watching the situation at the appropriate level,” Mukherjee said when asked what was the likelihood of RBI intervention in the wake of rupee depreciating to below 51 mark against the dollar.

“I am not guessing anything on what is comfortable level. I am depending on the advice of the RBI,” the Finance Minister said.

On Friday, the rupee slipped 51.34 against the greenback, registering the worst weekly fall in the past two months as importers scrambled for dollar and foreign institutional investors continued to sell equities.

According to official data, there were net foreign fund outflows of $31.92 million on Friday and $254 million this week from Indian equity and debt markets. The rupee had touched its all time low of 52.18 in March 2009, after global stocks plunged in the wake of the 2008 financial crisis.

The RBI has attributed the current movement in rupee to demand-supply factors. RBI Deputy Governor Subir Gokarn said that RBI was careful about using the foreign exchange reserves aggressively to protect the depreciation of the rupee. The performance of the rupee compared to other Asian currencies has become more pronounced since late July partly due to country’s widening trade deficit.

While most Asian countries have a trade surplus, India has traditionally run a trade deficit. In October, the deficit rose to $19.6 billion, its highest level in four years. But the reason for the current round of rupee depreciation is mainly due to strengthening of US dollar due to a steady fall in Euro owing to Euro zone crisis.

As a result, except for Chinese Reminbi, which is pegged against the US dollar, currencies of countries like Russia, Brazil, South Korea, and Indonesia have all plunged against dollar since the beginning of this year.

On Saturday evening, talking at the Canara Bank’s 106th Foundation Day celebration in Mumbai the Finance Minister said that the government will provide adequate capital to the state-owned banks during the current fiscal, a move that will help them to meet the international solvency norms.

“I would like to reassure, that I will provide adequate capital to the banks as and when necessary...there should be no apprehensions about bank recapitalisation,” he said.

The Minister further said that he had already earmarked Rs 6,000 crore for recapitalisation of public sector banks in the budget for 2011-12. Mukherjee’s assurance to recapitalise the PSU banks comes within weeks of rating agency Moody’s downgrading the outlook of the Indian banking sector to negative from stable.

(Published 19 November 2011, 07:23 IST)

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