The Reserve Bank of India Governor, Raghuram Rajan, on Monday assured the financial markets that the central bank will have no hesitation in using the foreign exchange reserves to reduce volatility in the currency market.
The comment came even as the rupee on Monday breached the 66 to the dollar mark due to the continued ripple impact of China devaluing its currency and the benchmark BSE Sensex tanking over 1,000 points.
Also, the risk-off sentiment, which led investors to buy gold, and increased possibility of a Fed rate hike, weighed on the domestic currency.
The rupee had closed 28 paise weaker on Friday at a new two-year low of 65.83.
“Let me emphasise that we have $355 billion plus another $25 billion in forward positions, which are not required until next year. So, we have close to $380 billion in reserves, which we will use as and when the need arises.
“Once market volatility settles down, India will emerge, once again, as the investment destination of choice,” said Rajan at the FICCI-IBA summit.
India’s forex reserves in the current calendar year so far have increased by $35.042 billion.
PTI adds:
Rate cut
The governor also hinted at lower rates, saying the RBI will look at emerging room for more accommodation on the back of lower commodity prices, astute food management by the government and strong anti-inflation policy stance of the central bank.
“Falling commodity prices and astute food management by the government should help RBI (lower rates)”, said Rajan.
He also said he sees oil prices remaining at low levels at for a year or two.
Rupee crashes
Amid free fall in stock markets, the rupee today crashed to 66.49 against the dollar, plunging a whopping 66 paise. The rupee has not seen such a low level in almost two years in the opening trade on sustained capital outflows even as the US currency weakened overseas.
The RBI Governor said that turmoil in currency market has been long-coming and China is only the last step in it.
Rajan, however, said that the rupee has strengthened against yen and euro, and RBI has resources to deal with rupee volatility.
In its biggest intra-day crash this year, the market benchmark Sensex plunged by 1,006 points, while Nifty fell below 8,000 level in early trade today due to heavy selling by funds amid global sell-off as worries about China’s economy deepen.
Asian markets were also in deep red with Shanghai shares crashing 8 per cent on concerns that the Chinese economy was slowing more than previously thought.
Taking cues from global markets, the Sensex nosedived 1,006.54 points, or 3.67 per cent, to 26,359.53 — the biggest fall in day trade in 2015.
The broader Nifty also dipped below the 8,000-level by tumbling 309.05 points or 3.72 per cent to 7,990.90 in early trade. All 50 constituents of Nifty are in red with Tata Motors and ONGC losing the most up to 6 per cent.
Brokers said sentiments suffered a jolt following a sell-off in other Asian markets with over 8 per cent plunge in Shanghai index.
Meanwhile, crude prices fell after slipping below $40 barrel for the first time in six years after weak Chinese manufacturing data.