Mumbai: RBI governor Raghuram Rajan said that there was no fundamental reason for the volatility that the rupee has witnessed in last few weeks.
In an urgently summoned press conference here on Wednesday, Dr Rajan said that it was important that “the market worries about the right things and does not get into a tizzy about the wrong ones,” and hence “it is important that the RBI clarifies its interpretation of economic events and the likely direction of policies at times of uncertainty.”
The Indian market has added volatility as it has become concerned about policy rates and about oil marketing companies’ demand for dollars, he said.
The turmoil in financial markets across the world on fears of a sooner-than-anticipated US Fed tapering has grown.
Stressing the huge positives to assuage the concerns of the market, Dr Rajan said that the current account deficit since May — when the US Fed first hinted at tapering the QE — is now less than three per cent of GDP and $32 million less than last year; there is a $52 billion dollar turnaround in FII inflows and there is a $32 billion less of CAD to finance this year.
On the issue of the oil marketing companies buying dollars in the market, the buying went smoothly and market players were not even aware of it until the finance ministry spoke of it.
Dr Rajan said the market’s worry about whet-her the much diminished CAD can be funded through capital inflows “is a little bit like a dog chasing its tail because a reason for FII outflows is a worry about whether the CAD can be funded.”
He said the other worry of the market on whether the OMCs will add to further downward pressure on the rupee when it is time to repay the dollars to the RBI next year, is “a non-issue.”
The RBI governor concluded saying that with fears around, “it makes sense to take a deep breath and examine the fundamentals. I hope you all will do that.”
