Indian Finance Minister, Palaniappan Chidambaram, said yesterday that the the rupee’s value is determined only by the market participants and is not regulated by the government in any way. The Indian rupee lost 0.5% this week falling down to 39.555 against the U.S. dollar after almost three weeks of gain. Indian currency gained more than 12% against dollar and about 6% against a bucket of six major world currencies.
P. Chidambaram was giving commentaries to the reporters in Mumbai yesterday:
We don’t have a view on the rupee. It is market-determined. The rupee’s appreciation or otherwise gives rise to stress in some sectors. We will address those problems.
The appreciation problem for rupee is important to Indian economy, because more expensive rupee makes Indian exported goods to cost more. Of course, it drives up the competition level, thus making producers to increase the product’s quality, but it is also dangerous to the economy growth. “Addressing this problem” may include rupee interventions into the country’s Forex market by central bank, as it has already happened recently. Other measures to help Indian exporters may include duties and taxes easing.
While growth of the national currency’s value is inevitable for such a fast growing economy as Indian, the exchange rate with particular foreign currencies can be kept at a reasonable level by the government. And as Finance Minister says that rupee’s exchange rate is determined by the market, traders should also understand, that rupee won’t be allowed to reach high highs against dollar and euro; the first signs of currency’s depreciation will be met happily by the Indian government.
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