RBI should check speculation in forex market: Basu

Basu says rupee volatility is a concern and the govt is watching it

Concerned over the volatility in Rupee, Chief Economic Advisor Kaushik Basu today made a case for RBI curbing speculative activity in foreign exchange market.

"Rupee volatility is a concern. We are watching it," Basu said while addressing a UNESCAP event here.

He said the Reserve Bank intervenes in the forex market whenever there is sudden or a couple of fluctuations in rupee.

"RBI is hands off if there is big fluctuation. Some are natural processes... But there are also speculative moves that players make on this and those have to be watched very very carefully by the RBI," Basu said.

The Rupee today recovered by 60 paise to 53.24 against the US dollar in early trade, from yesterday's close of 53.82, after the RBI asked the exporters to sell 50% of their retained foreign exchange earning.

The apex bank also fixed a limit for intra-day trading of foreign currency by banks.

He said over the last 10 years, Rupee has been inflating at 10%, while dollar at 2% per annum, which means the Rupee is losing value vis-a-vis dollar for the last few years.

"Certain amount of depreciation of the nominal exchange rate is purely a reflection of the differences in the inflation that have occurred over the last few years," Basu said.

Replying to a query on the impact of high commodity prices, Basu said consumers cannot be cushioned for persistently high global prices.

"If the global prices are high for a product that is imported there is no way you can totally shelter the population. If you shelter it by holding that price completely constant, it appears that you are sheltering customer... But you are building up on your fiscal deficit," he said.

Crude oil prices have been rising due to geo-political reasons, including the Iran situation. The prices had touched a high of $125 a barrel in March although it has receded around $113 a barrel now. India imports about 80% of its crude oil requirements.

"If the commodity prices remain high and especially that of fuel... This is a major concern to us. In the medium term, we will try to adjust to be exposed to somewhat to the global prices," Basu said.