As the rupee breached the 65 mark against the US dollar on Thursday, the finance ministry and the Reserve Bank of India spoke in one voice to try and calm ?unwarranted panic in the market?, and said the government had enough foreign exchange reserves to meet the current situation.
?There is no cause for the panic that seems to have gripped the currency markets and that is feeding into other markets. We are confident that stability will return to these markets and we can get on with the task of promoting investment and growth,? Finance Minister P Chidambaram said.
The finance minister and RBI Governor D Subbarao held back-to-back press meets on Thursday afternoon. Both acknowledged that there was a need to communicate more with the media. Last Friday, the RBI had announced measures to cut back forex spending limits by companies and individuals, as a result of which the bond, currency and stock markets had their worst single-day decline since 2008.
Later that evening, both the finance ministry and RBI held briefings to quell rumours about further capital controls. Since July 15, when RBI began with measures to aid the rupee, the currency has lost 7.9 per cent against the dollar.
Earlier on Thursday, Chidambaram held an over three-hour-long meeting with Subbarao, RBI governor designate Raghuram Rajan, Department of Economic Affairs Secretary Arvind Mayaram, and senior finance ministry officials.
At Thursday?s press conference, Chidambaram said, ?There was ? and is ? no intention to introduce any type of capital control, including controls on repatriation… The measures that were taken last week will be revisited as stability returns.?
Subbarao too said the RBI did not plan to impose any capital controls. He said the central bank would take appropriate measures to curb rupee volatility.
Despite the slew of measures announced by the finance ministry and the RBI over the last two weeks, the rupee touched an all-time intra-day low of 65.56 before recovering to settle at 64.55 against the dollar on Thursday.
Chidambaram said the rupee ?has overshot what is generally believed to be a reasonable and appropriate level. Capital inflows in due course will correct the position?. Currencies of other emerging economies too have been impacted in anticipation that the US Federal Reserve would begin to taper its bond purchase programme.
A statement issued by the finance minister?s office noted that economic growth could remain flat in the first quarter of the current fiscal but would pick up over the next three quarters.
?Thanks to the global slowdown as well as some domestic factors, the Indian economy is challenged… There is no reason for excessive or unwarranted pessimism,? he said, adding that the pick-up in growth would be on the back of an increase in sown area by about 9.1 per cent, acceleration in Plan expenditure and impact of the projects cleared by the CCI in last few months.
India?s GDP growth in the first quarter of the last fiscal was 5.5 per cent but touched 4.8 per cent in the fourth quarter of last fiscal. Data on GDP growth for the April to June quarter of 2013-14 will be released on August 30.
