Millennium Post

Rupee volatility may invite RBI intervention in forex

The Reserve Bank will intervene in the forex market in case of extreme volatility of the rupee as it has done in the past, RBI deputy governor H R Khan said on Tuesday.

‘[When] there are extreme situations where there is extreme volatility...we have intervened in the past. If there are cases of extreme volatility, we will also intervene in the future,’ Khan said on the FT-Yes Bank event.

He added, however, that the stated policy of the central bank is not to intervene in the forex market and let the market forces determine the exchange rate.

Referring to the steps taken to check volatility in the domestic currency, Khan said, ‘We have taken both tactical and strategic measures. Government has also taken some steps.’

Rupee, which has strengthened to Rs 52 level in the recent past, has shown some weakness in the last two trading sessions and breached Rs 53 level yesterday after wholesale price index [WPI] based inflation rose to a 10 month high of 7.8 per cent for September.

Khan also said that the monetary and fiscal policy have to move in tandem.

‘As we have articulated time and again, it [monetary policy] has to be in tandem with the fiscal policy.

It has to be a joint venture. It is not a solo play,’ Khan said, adding that the fiscal deficit is one of the major concerns in the current situation.

He said the supply side response is required for inflation management.

Khan also said the government and the RBI are mulling to introduce a ‘premium budget’ to retire illiquid securities in the G-Sec market.
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