‘RBI doesn’t have target exchange rate, just trying to curb volatility’
As rupee fluctuated in the market, Reserve Bank of India on Thursday said that it is not targeting any specific exchange rate and will use all instruments to manage the volatility.
'We do not have an exchange rate target ... We try to manage volatility in the currency movement ...,' RBI Governor D Subbarao told reporters.
'... We employ instruments available to us in order to manage volatility,' Subbarao said.
The rupee had touched historic low of 60.76 level against the dollar on 26 June due to heavy capital outflows amid fears of early withdrawal of US monetary stimulus.
A high current account deficit (CAD) is also putting pressure on the value of rupee. CAD touched a record high of 4.8 per cent of the GDP in the 2012-13 financial year due to high imports, including that of gold.Both the government and RBI have taken steps to contain gold imports.
Measures have also been taken to enhance FII inflows in addition to easing norms for domestic companies to raise funds from abroad.
Subbarao's comments come after the rupee touched its record low of 60.76 to a dollar on 26 June. Subbarao also said the central bank is also ‘very conscious’ of the need to be supportive of economic growth.
A day after Chidambaram nudged banks to cut base lending rate in line with periodic interest rate cuts being made by RBI, Subbarao said lending rates have be to reduced to attract investments.
‘When the Reserve Bank calibrates its short term policy rate, the expectation is the monetary transmission will takes place and the banks should respond by calibrating the lending rates. Some banks have responded, some have not.
‘There are several reasons for monetary transmissions not being agile as it should be. So, in a way, the Reserve Bank is conscious of the need of monetary policy transmission taking place. Because it is important that banks respond by calibrating their lending rates in order to attract investments,’ he said at a press conference here.
On Chidambaram’s message to RBI to be supportive of growth when deciding on monetary stance, he said, the central bank is conscious of it and will balance it with inflationary concerns.
‘Well, the objectives of monetary policy are price stability, growth and financial stability as we have said several times. And growth also subsumes employment generation. The challenges for monetary policy are to balance between these objectives,’ Subbarao said.
‘We have great regard for what the Finance Minister has said and we have great regard for what the government is saying. And in taking the monetary policy decision every six weeks, we (do) counter balancing of these objectives, he said.
‘The short point is we are very conscious of the need to be supportive of growth but supportive of growth in an environment of price stability and financial stability,’ he said.
Earlier this week, Chidambaram said RBI should not focus solely on containing inflation but also look at the larger mandate of growth and creation of jobs.