Pranab discusses rupee depreciation with RBI chief

Finance Minister Pranab Mukherjee has said that intervention in the currency market would be considered at an appropriate stage and he has discussed with Reserve Bank Governor D Subbarao the situation created by the depreciating rupee in the past few days.

"I had a discussion with the RBI Governor as he is here," Mukherjee told a group of Indian reporters here. The Finance Minister and RBI Governor are here to attend the annual meetings of the Indian Monetary Fund and the World Bank.

Mukherjee said the government was closely monitoring the situation and intervention in the currency market would be considered whenever necessary.

"We will watch the situation for some time and as and when intervention would be required that will be considered at that stage," Mukherjee said in response to a question.

In order to check high volatility in local currency value, Central banks world over intervene in markets through buying or selling of foreign currencies, as required.

This week alone, the rupee lost 231 paise, or 4.89%, against the US dollar.

On Friday, rupee closed at 49.43 per dollar after falling to 49.90 per dollar. The sharp depreciation in rupees has been mainly attributed to rising demand for dollars from foreign institutional investors (FIIs) and oil companies.

RBI deputy governor Subir Gokarn had earlier said that there was no move of intervention in the currency market as this time.

"We, at this point, do not see any intervention from a rate targeting view point. That is something that would reflect a change in policy stance, which we are not doing at this  point," Gokarn had said.

"If we do intervene at all, it will be with a very narrow objective of smoothening what might be a very volatile market situation, nothing beyond that," Gokarn had said.

Meanwhile, responding to questions on price rise, Mukherjee said substantial inflationary pressure was there because of demand.

"There is a demand side pressure. There is no doubt about it, because we had to resort to huge fiscal expansion from December 2008 to first quarter of 2009... Stimulus package (to deal with the global financial crisis was) almost three percent of GDP", he said.

The fiscal expansion had its impact on fiscal deficit which went as high as 6.6% of the GDP from 2.5%, he said.

As regards food inflation, he said, it was substantial due to the constraints on the supply side. "Therefore, we have to remove those supply side constraints. We have taken some short and medium term steps," he added.

The headline inflation is nearing 10% despite the Reserve Bank raising key policy rates for 12 times since March 2010 to contain price rise.