A day after the rupee fell to its record low, Union Minister Arun Jaitley said on Wednesday that India holds sufficient foreign exchange reserves to mitigate any undue volatility in the foreign exchange market.
Geo-political pressures, along with outflows of foreign funds and high crude oil prices dragged the Indian rupee to its lowest ever intra-day level of over 70 against the US dollar on Tuesday when it plunged to 70.08 — the lowest ever — against the greenback.
However, intervention by the Reserve Bank of India (RBI) and stabilisation in the global currency markets pared the rupee’s early fall.
At the end of the intra-bank trade session on Tuesday, the Indian rupee strengthened by four paise at 69.90 against the dollar, compared to Monday’s close of 69.94 per greenback.
“India’s foreign exchange reserves are comfortable by global standards and sufficient to mitigate any undue volatility in the foreign exchange market,” Jaitley tweeted.
“However, India’s macro fundamentals remain resilient and strong. The developments are being monitored closely to address any situation that may arise in the context of the unsettled international environment,” he said in another tweet.
“Recent developments relating to Turkey have generated global risk aversion towards emerging market currencies and the strengthening of the dollar.
“The developments are being monitored closely to address any situation that may arise in the context of the unsettled international environment,” Jaitley, who is currently convalescing, said in a separate tweet.
According to analysts, the rupee’s swift move past 69 happened due to foreign institutional investor outflows and the impact of global sentiment.
“On a medium term basis, the rupee will need to depreciate further to keep up with the inflation differentials with other trading partners. However there could be a minor reversal of this depreciation on a short term basis when the global situation stabilises,” said ICICI Bank Global Markets Head B. Prasanna.
“Since currencies of emerging and developed markets are falling, the RBI is not intervening aggressively in the market. It is intervening selectively to contain volatility,” said Rushabh Maru, Research Analyst, Anand Rathi Shares and Stock Brokers.