US stimulus roll-down should not affect rupee: Mayaram
24 Sep 2013
The looming threat of the United States tapering off its economic stimulus measures should be no reason for the Indian rupee to tank, as the government has enough ammunition to deal with such a situation, a top finance ministry official said today.
"I do believe when tapering happens then there will be outflow of capital, but the fact also remains that we have enough ammunition in hand ... there is no room to be fearful of rupee taking a tanking," economic affairs secretary Arvind Mayaram said at a function in New Delhi.
His statement comes at a time when the rupee is at record lows against the dollar.
"We have close to $270 billion in foreign reserves with the Reserve Bank of India, close to $40 billion additional inflow of capital this fiscal year, a $50-billion swap arrangement with Japan," Mayaram elaborated.
He further said a $100-billion contingency fund has been signed by the BRICS group of emerging economies.
The US Federal Reserve last week surprised the markets by saying it will continue with its monthly $85-billion bond buying programme and wait for more evidence of growth recovery before thinking of unwinding the stimulus.
Expectations that the stimulus programme would be tapered had led to fears of capital outflows, causing the rupee to depreciate against the dollar and stocks to fall.
Mayaram said the intrinsic value of the rupee is between 58 and 60 against the dollar. "There is something called intrinsic value ... (which) comes from the currency's purchasing power. The intrinsic value of the rupee in terms of real effective exchange rate (REER) could be somewhere between 58 and 60," he said.
He said foreign direct investment (FDI) inflows to India in the current fiscal would be around $36 billion. "This year in the first quarter, the net FDI flow in the country has been $9 billion, which is 70 per cent higher than FDI inflow in the first quarter of the last fiscal. If that trend continues, then I have no doubt FDI inflows in the country will be $36 billion," he said.
Mayaram also said the government will be able to save around $1 billion as bulk diesel demand falls.
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