Euro zone crisis a concern: FM

Finance Minister Pranab Mukherjee on Tuesday seemed visibly perturbed when he said a series of bad news is coming. His remarks assumes importance in the wake of industrial growth plunging to a 21-month low of 3.3 per cent in July, inflation running over nine per cent for the eighth month in a row in July as well as rupee depreciating against the dollar and euro debt crisis getting prolonged.

“A series of bad news is coming. First we had the IIP index (at 3.3 per cent in July) lowest in two years... And (second) lengthening shadow of the Eurozone crisis all over the market in the world is a matter of concern. But at the same time, we cannot lose our nerve," he said on the sidelines of a conference organised by think tank Icrier.

RBI’s continuous rate hiking spree could not put brakes on high inflation but has stifled growth. While GDP has declined to below eight per cent at 7.7 per cent for the second quarter in a row in April-June, wholesale price-based inflation could not be brought to below nine per cent for eight consecutive months till July.

The inflation data for August will come tomorrow and RBI is slated to come out with its monetary review two days after that.

Meanwhile, rupee has started depreciating after investors across the globe piled up dollars.

To a query over rupee depreciating against the dollar, the Mukherjee said,"Today it is better."

However, after recovering a bit in the morning the rupee fell again to close at 16-month low of 47.59 against the dollar.

 

 

 

Mukherjee said large and volatile capital flows to the emerging markets can be destabilising as they lead to high exchange rate volatility. "Large and volatile inflows are also associated with asset price boom and encourage excessive risk taking by traders and investors and therefore threaten financial stability," he said.

Meanwhile, the Reserve Bank stated that it will not intervene in the market unless the situation turns serious.

Deputy Governor Anand Sinha said,"it is clear policy of RBI that we address volatility and not the level unless it is grave and adverse situation."

Planning Commission Deputy Chairman Montek Singh Ahluwalia also said that the central bank should intervene in forex market only in extreme circumstances.