Reer Indication In Weekly Bulletin Must: Tarapore

The RBI must indicate the real effective exchange rate (Reer) of the rupee in its weekly bulletin in order to clear certain doubts related to the factors that led to the volatility of the currency in the inter-bank exchange market, former RBI governor S S Tarapore has said.

Reacting to various measures taken by the RBI, Tarapore said there was no need to hide any facts related to the level of effective exchange rate of rupee. Such transparency in exchange of informations would curb the volatility in the market and contain the speculators to create any damages to economic fundamentals.

 

In fact, the central bank is in an advantaged position to publish informations related to the exchange rates mainly when the economic fundamentals like the inflation rate and current account deficit remained reasonably at low levels, he said.

"At present, the RBI publishes the rupee's effective exchange rate in its monthly bulletin with a gap of three to four months which is of no use. This level should be indicated on weekly basis so that the people should not speculate on this sensitive issue."

Asked about RBI measures on hiking bank rate and cash reserve ratio (CRR), Tarapore said the measures were far from being a roll back of the reform process and reflected the fine maturity and judgement of RBI particularly in an emerging integrated monetary and exchange markets.

Insisting that the rupee would be within the five per cent margin of REER as recommended by the Capital Account Convertibility (CAC) committee headed by him, Tarapore said the RBI measures would not have any adverse effect on the real economy since the decline of the rupee against the US dollar was relatively small as compared to the other currencies of the far east nations.

Tarapore said the short term interest rates would rise and effectively reverse the leads and lags and this was precisely what the authorities should be doing in case of any pressures on the exchange rates. The time to douse the fire is when it is at the footsteps of your house and not when your bedroom is fully blaze. The relaxation on nostro account balances and the square positions were indeed welcome as these were in a sense, immediate fire fighting measures pending putting in place more effective monetary policy measures, he said. Only in the last five-day trading session of the week, the currency depreciated by about 1.8 per cent and marketmen believed that there were further rooms for rupee to slip by atleast another two to three per cent in the near future. Since July one this year, the rupee had fallen by around 11 per cent against the dollar as compared to 19 per cent fall in case of Singapore dollar and 70 per cent in Indonesian rupaih.