rediff.com: 'Rupee fall has adjusted real exchange rate'

The Indian rupee's recent fall against the dollar has adjusted for an appreciation in real exchange rate terms and will help Indian exports, Minister of State for Finance Dhananjaya Kumar told Parliament on Tuesday.

"The rupee was under downward pressure, reflecting partly the strengthening of the US dollar in the international markets and partly some market correction in the nominal exchange rate for the fact that the rate of inflation in India was higher than the rates of inflation in India's major markets," he said.

This had led to some appreciation of the rupee in real effective exchange rate terms, Kumar said.

The minister was giving a written reply in the Rajya Sabha to a question on the reasons behind the recent fall in the rupee and measures taken by the government to stabilise the currency.

The rupee has fallen more than 3 per cent this year. Last Friday it closed at a record low of 45.025/03 per dollar.

The currency subsequently rallied after the Reserve Bank of India moved to raise interest rates and tighten liquidity, and on Tuesday afternoon it was quoted at 44.87/88.

Kumar said the fall in the rupee had corrected for the currency's appreciation in real effective exchange rate terms.

"The market correction in the exchange rate will also offset some of the competitive disadvantages arising from the sharp depreciation of currencies of our competitors in South Asia and neighbouring countries. This is expected to give a boost to our exports," he said.

"The rupee depreciation is also expected to restrain imports and will help strengthen our efforts at cost-effective import substitution."

Kumar reiterated the government's and the RBI's position that the exchange rate of the rupee is market-determined.

"The exchange rate developments are closely monitored by the government and RBI," he said.

"The RBI, as and when necessary, intervenes in the foreign exchange markets and deploys suitable monetary and other measures to effectively counter speculative pressures on the rupee," he said.

The RBI's measures are aimed at evening out demand-supply mismatches in a relatively thin foreign exchange market and at ensuring orderly market conditions, he added.

(c) Copyright 2000 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.


	HOME \| MONEY \| REUTERS \| REPORT