As the benchmark S&P BSE Sensex tanked by more than 700 points in the afternoon, the Finance Ministry today said excessive rupee volatility is impacting the equity markets.
"Our sense is that what is seen in India is happening due to what is happening all over the world. The rupee worry also spills over to the equity markets and the equity worry spills over to the rupee. It is potentially vicious," a ministry official said.
The rupee today touched an all-time low of 62.03 to a dollar, spooking the equities market and dragging the Sensex down to 18,621.39 in the afternoon. The index had closed at 19,367.59 on Wednesday.
"The rupee will finally find a level based on the state of the economy...We are happy or prepared to live with orderly movement in the value of the rupee," he said, adding that the government and the RBI at present do not want to use their armoury and would rather stick to relatively smaller measures that won't choke growth.
"If the government wants to arrest the fall in the rupee by completely choking liquidity, it is very easy to arrest the fall in the rupee, thereby hurting the growth process," he said.
The decline in the currency and the equities markets, he said, was also on account of US data showing that joblessness in America was reducing, fuelling fears that the Federal Reserve would start withdrawing its stimulus.
US Federal Reserve Chairman Ben Bernanke had earlier indicated that the Fed could taper its bond-buying programme with an improvement in the US economy.
"The data which has come out indicates this could finally be the beginning of easing. It (the tapering) could be as early as next month's bond-buying programme," the official said, adding that this concern affected the markets today.