RBI says will intervene in forex market

Amid efforts being made to stem the rupee's fall, RBI Governor D Subbarao has said the currency's exchange rate will largely be market-determined but central bank would intervene to prevent disruptions to macro-economic stability.

"We let our exchange rate be largely market-determined, but intervene in the market to smooth excess volatility and/or to prevent disruptions to macroeconomic stability," he said while speaking at the European Economics and Financial Centre on Wednesday.

India, Subbarao said, has been following the 'middle solution' to deal with exchange rate problems. Middle solution implies giving up some flexibility to maximise overall macroeconomic advantage. He elaborated that in India the rupee is only partly convertible.

While foreigners enjoy unfettered access to equity markets, access to debt market is limited. Besides, there are limits on funds which resident corporates and individuals can take out for investment abroad.

The RBI this week announced measures like raising cost of borrowing by banks by 2 per cent to 10.25 per cent and announcing sale of bonds worth Rs 12,000 crore through open market operations to suck liquidity in its bid to check sliding rupee which hit a lifetime low of 61.21 earlier this month.

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