Mayaram calls the rupee fall irrational sentiment

Arvind Mayaram assures investors that CAD in 2013-14 would be much lower than expected

As the rupee breached the 68-mark against the dollar on Wednesday, the finance ministry said the pessimism on the currency was an irrational sentiment and there was no need to press the panic button. “This is an irrational sentiment. It would correct itself. It is important to stay on course. There is no need to panic,” Economic Affairs Secretary Arvind Mayaram told reporters.

He assured investors the current account deficit (CAD) in 2013-14 would be much lower than expected and some moderation was already visible. The CAD hit a record high of $88.2 billion or 4.8 per cent of the gross domestic product (GDP) in 2012-13. This year the government is planning to contain it at $70 billion, which is 3.7 per cent of the GDP.

Mayaram said the government was not planning to ban derivatives trading in the currency market. According to some experts, this could help curb speculation.

The rupee closed at 68.8 against a dollar on Wednesday. The currency had shown some signs of strengthening on Friday but fell sharply again this week over concerns that the food security Bill would widen the fiscal deficit.

Finance Minister P Chidambaram had assured Parliament on Tuesday the Bill would not have any impact on the fiscal deficit this year. He had said the rupee was undervalued and came out with a 10-point action plan to revive the economy, including promoting exports, encouraging manufacturing, and reducing the fiscal deficit and the CAD. But the currency continued to depreciate due to a rise in oil prices on concerns of a possible military attack by US and its allies  against Syria.

The depreciation in the rupee is 20 per cent since April, as investors worry about a large CAD, slowing economy, and fear capital controls. Besides, the Federal Reserve in the US has indicated it might rollback monetary stimulus, making investors flee to the US.