RBI happy with reduction in exchange rate volatility: Rajan

Tags: News
Reserve Bank Governor Raghuram Rajan today said the central bank is contented with reduction in the volatility of the rupee.

"We are happy with the reduction in volatility and that was our aim right through. We also wanted to reduce the unhinged expectations on the rupee, there was a point where analysts were competing with each other to see how weak they could proclaim the rupee to be at the end of the year...We hope that that unhinging of expectations have come down," Rajan told reporters in a post-policy interaction.

The rupee which fell close to 30 per cent between April and August, got some respite after Rajan, who took over in September, announced a slew of measures to prop up the local currency. The rupee had gained 11 per cent between September and November. It was trading up 15 paise at 61.85 to the greenback at 1430 hrs.

On September 4, the RBI had announced a special window allows for banks to swap fresh FCNR (B) dollar funds, mobilised for a minimum tenor of three years, at a fixed rate of 3.5 per cent per annum.

It also allowed banks to borrow up to 100 per cent of their tier-I capital from overseas, which can be swapped with the central bank at a concessional rate of 100 basis points below the ongoing swap rate prevailing in the market.

These measures helped RBI garner USD 34 billion between September and November.

"Our forex reserves are built up on the back of the FCNRs and capital window that we opened where we took the money directly into the reserves," the governor said and ruled out buying dollars from the market to improve the reserves.

On the impact of the US tapering which is likely to be announced at the Fed meeting today, the Governor said the external environment is something which the RBI cannot be complacent about and it is continually focused on it.

"As I have said before, we are in a better position to withstand the volatility stemming from the tapering," Rajan said, adding however that nobody, including the Fed themselves, knew the consequence of tapering when it was announced.

"I think the maximum likelihood at this point is tapering light, as some people call, starting tomorrow, but whether it is tomorrow, or next month or a month after it has to happen. But we are better prepared, but we cannot take the eyes of the ball."

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