Press Trust of India
JAIPUR, 16 JULY: Asserting that rupee price will be market determined, finance minister P Chidambaram today said last night’s measures by the Reserve Bank have nothing to do with the upcoming monetary policy review and may not impact interest rates of banks.
RBI’s measures, he said, were aimed at checking excessive volatility and speculation in the forex market.
“These measures (RBI decisions) should not be read as prelude to any policy rate changes. This has nothing to do with upcoming policy review of RBI. I don’t expect banks to increase interest rates as a result of yesterday’s measures” Mr Chidambaram said at a press conference here.
RBI last night announced a slew of measures like raising cost of borrowing by banks by 2 per cent to 10.25 per cent and announcing sale of bonds worth Rs 12,000 crore through open market operations to suck liquidity to check rupee slid, which had earlier in the month touched a all low of 61.21 to a dollar.
“Measures are taken to curb excessive speculation and reduce volatility and stabilise the rupee,” Mr Chidambaram added.
The value of rupee, he said, will depend upon “how much foreign exchange we earn and how much foreign exchange we spend”.
Admitting that there will be some depreciation of rupee in view of high current account deficit and inflation, Mr Chidambaram said the value of domestic currency will be market determined and it will find its price.
“We know that in forex market sometimes there is excessive speculation. Excessive speculation leads to volatility in market. So what any central bank or RBI and government can do or should do is ensure that volatility is reduced and there is not too much speculation in forex market”, the minister said.
Mr Chidambaram was here in the city to address media along with Health Minister Ghulam Nabi Azad as head of the Group of Ministers (GoM) on media.
The initiatives announced by the RBI, he elaborated, were “intended to quell excessive speculation in forex market and to reduce volatility in forex market. These measures should not be read as a prelude to any policy rate changes. This has nothing to do with policy rate changes”.
RBI is scheduled to announce first quarter monetary review on 30 July amid demand from industry to cut interest rates to boost sagging growth.
Mr Chidambaram said the measures were taken by the RBI in consultation with the government and “both are on board”.
Ruling out the possibility of ban on import of gold, the minister appealed to the people to reduce consumption of the precious metal which was costing nation USD 50 billion in foreign exchange.
Referring to growth, Mr Chidambaram stressed that the measures taken by the RBI “will in no way affect our commitment to growth. We must increase credit delivery and must stimulate growth”.
In the current fiscal, he said, growth rate would be over 6 per cent, higher than 5 per cent recorded in 2012-13.
“This year, by all estimates, it (growth rate) will be 6 per cent or slightly above. This is not satisfactory level of growth.” he said, attributing the moderate increase in growth to slowdown in advanced economies.
Referring to the Food Security Bill, Mr Chidambaram said it would be the first item on agenda in the Monsoon Session of Parliament beginning on 5 August. He said the ambitious scheme would be rolled out in the next six months in all the states.
“Ordinance (on Food Security) will go to Parliament. Parliament will have to approve the law within 6 weeks after the session begins. The session is beginning on 5 August. It will be the first item before the monsoon session,” he said.
Mr Chidambaram expressed confidence that all political parties would vote for the Food Security Bill in Parliament.
Justifying the government’s decision to come out with an Ordinance on the Food Bill, he said, “how long can we wait to make this into a law? "Therefore, after finding that principal opposition party was not able to speak in one voice and was not responding in a manner it should respond, government took the decision to come out with an Ordinance”.
He further said the government would endeavour to get Bills on real estate sector, street vendors and land acquisition passed in the monsoon session.
On Direct Benefit Transfer (DBT), the minister said by the end of the year all LPG consumers would get the subsidy transferred into their bank accounts.
“LPG, which touches practically every home, is being brought under the DBT. By the end of the year, all LPG consumers will get their subsidy through the DBT”, he said.
The DBT scheme, which currently covers 20 per cent of population in 121 districts, is being rolled out rapidly, the minister added.
Answering questions on fiscal deficit, he said, efforts would be made to contain it to 4.8 per cent of the GDP.
“That is a red line and that would not be breached. Over a couple of years, we will bring it down to below 3 per cent. A fiscal deficit below 3 per cent is entirely tolerable, entirely serviceable and there is no reason for any fear or alarm on that account”, he said.
The fiscal deficit in 2012-13 worked out to be 4.9 per cent, lower than the target of 5.1 per cent envisaged in the budget for the fiscal.