Amid a steep decline in the value of the rupee, the Reserve Bank said on Thursday that it is monitoring the situation and will do whatever is necessary to check the currency's fall.

“RBI will do whatever is necessary. Some structural changes are necessary for improvement in the current account. Meanwhile, the RBI is monitoring the situation and we will do whatever is necessary, consistent with our policy,” the RBI Governor, Dr D. Subbarao, said while addressing a press conference after a meeting of the central bank board here.

Pointing out that the rupee has been depreciating over the last three to four months, he said, “RBI is continuously monitoring the situation. We have taken action through current account flows, encouraged inflows and also (steps) to curb speculation.”

Since March 1, rupee has lost over 13 per cent and 11 per cent since the presentation of Budget on March 16 in the face of withdrawal of funds by foreign investors from stock markets.

The Budget contained proposals such as retrospective taxation and general anti-avoidance rules (GAAR).

The movement of the rupee, Dr Subbarao said, “is a function of external situation as well as developments in the current account and capital account and balance of payments”.

Oil marketing cos

On the issue of RBI selling dollars directly to oil marketing companies, Dr Subbarao said, “That's been an issue on the table. I am not ruling it out. I am also not saying that we are going to do it right know. It's an open issue. We have done it in past. At the moment, we have not done it so far.”

Several experts, including Dr C. Rangarajan, Chairman of the Prime Minister's Economic Advisory Council (PMEAC), have suggested that the RBI should consider selling foreign currency to oil companies as they withdraw huge amounts to buy crude in the international market.

Price situation

Replying questions on the price situation, Dr Subbarao said the deterioration in inflation has been mainly on account of the rise in prices of food items.

“We noted that inflation has been a surprise upside for month of April. We also noted that increase has been on account of food inflation,” he said, adding the central bank will take into account recent developments while announcing its mid-quarterly policy review on June 18.

“Core inflation, which is non-food manufacturing (items) has remained below 5 per cent. So in our next mid-quarterly review, we will take into account the numbers which have come after our mid-April statement. We will consider how the inflation scenario has evolved. We will take into account the growth statistics and take a decision,” Dr Subbarao said.

Pitching for reduction in the fiscal deficit, Dr Subbarao said, it was necessary to contain inflation.

“Our views are quite well known on fiscal deficit. We have said that fiscal consolidation is very important and very necessary for inflation to come down. So we have said that in our annual policy statement last month that Government must deliver on the budgeted fiscal deficit target,” he said.

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