India’s current account deficit has been a major factor for the downward movement of the rupee. As the current account deficit corrects, be it due to lower oil prices, increased exports or lower imports, it will have the reverse effect, said Dr Subir Gokarn, Deputy Governor, Reserve Bank of India.
Replying to a question on how the rupee managed to gain in the last few days, Dr Gokarn said there is clearly some positive news from the global front, especially after the EU summit and on the domestic front in terms of policy action, particularly the raising of the ceiling on FII investments. These, he said, might have contributed to the rupee strengthening.
Saying that one cannot directly correlate the rupee movement with the open market operations, he said OMOs are driven by judgments on liquidity conditions.
Speaking to a group of media persons on the sidelines of a conference here, Mr Gokarn said the Reserve Bank is continuously focussing on maintaining liquidity within the comfort zone. “Whatever is causing liquidity stress, whether it is the foreign exchange market or something else, we are focused on maintaining liquidity conditions within the comfort zone that we have stated. And that will continue to be the benchmark.”