Justifying RBI intervention to arrest rupee depreciation, Planning Commission Deputy Chairman Montek Singh Ahluwalia said on Tuesday there would be some ‘pain’ due to the action in short term.
"We have got an overall situation where the RBI did what was necessary to signal to market that the exchange rate is being pushed into an unreasonable range. . . But of course, in the short run there is going to be some pain and also some worry, that's understandable," Ahluwalia told CNBC-TV18.
"When the stability will be restored the RBI will be able to wind out this intervention... but you know taking it (rupee value for a dollar) at 60 you have to give some signal otherwise there is a serious danger of overshooting," Ahluwalia told the news channel.
On Monday, Reserve Bank hiked the lending rates to banks by 2 per cent to 10.25 per cent.
Besides it will sell government securities to suck out liquidity to the tune of Rs 12,000 crore (Rs 120 billion) on July 18.
According to Ahlulwalia, the fall of rupee upto a level of Rs 58-59 (for a USD) looks justifiable as India is running a large Current Account Deficit.
But rupee going beyond 60 (for a USD) needs intervention (by RBI) to avoid further fall.
The rupee had touched an all time low of 61.21 per US dollar on July 8 as the greenback gained strength on hopes the US Federal Reserve may pullback its stimulus programme by the end of this year.
In early morning trades today, rupee gained a significant 64 paise to 59.25 per US dollar on fresh dollar selling by exporters after the RBI announced a slew of measures to stem the local currency's volatility.
Image: Montek Singh Ahluwalia
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