Govt targeting a level for rupee, says Chidambaram

Jaipur/New Delhi July 16: Dismissing fears that RBI decisions last night could lead to tightening of interest rates, Finance Minister P Chidambaram today said government was targeting a "level" for the fluctuating rupee.

He does not expect banks to increase their lending rates in the aftermath of the RBI's decisions which he said were taken to arrest excessive speculation and volatility in the forex market.

Chidambaram also said that steps taken and those to be taken will moderate inflation and contain the high Current Account Deficit (CAD).

"These measures (RBI decisions last night) are intended to quell excessive speculative activity in the foreign exchange market and to stabilise the rupee. I believe that these measures are for short term and certainly should not be interpreted as a prelude or precursor to some kind of tightening of policy rates.

"I am confident that rupee will stabilise. We are targeting a level for the rupee. But there are times when each one of us know intuitively that the rupee may have slid more than it should. Therefore, we want the rupee to stabilise. We want volatility to be contained," he said while addressing venture capitalists and private equity funds in Delhi.

Earlier in the day, he told a press conference in Jaipur, "These measures should not be read as prelude to any policy rate changes. This has nothing to do with upcoming policy review of RBI...I don't expect banks to increase interest rates as a result of yesterday's measures".

RBI last night announced a slew of measures like raising cost of borrowing by banks by 2 per cent to 10.25 per cent and announcing sale of bonds worth Rs 12,000 crore through open market operations to suck liquidity to check rupee slid, which had earlier in the month touched a all low of 61.21 to a dollar.

The government which has been saying that value of rupee will be decided by the market for the first time today spoke of targeting a level for the currency. In the morning press conference he said the value of rupee, he said, will depend upon "how much foreign exchange we earn and how much foreign exchange we spend".

PTI