India central bank says will defend ailing rupee ...

December 4, 2011

India central bank says will defend ailing rupee

NEW DELHI: India's central bank said on Saturday it would act to prevent a "downward spiral of the rupee" which has been hit by fears about the global economy.

The rupee has been stumbling to record lows against the dollar as foreign investors abandon Indian and other emerging market currencies in search of safe havens.

It plunged to a record low of 52.73 against the dollar last month on fears about the eurozone debt crisis and the world economy, as well as falling Indian shares which are faring the worst among their regional peers.

"In volatile market conditions that we see today, RBI (Reserve Bank of India) intervention to keep markets orderly and prevent a downward spiral of rupee is justified," said central bank deputy governor Subir Gokarn.

"If we do see the short-term risk of a downward rupee spiral escalating we will not hesitate to use all available instruments," Gokarn said in a video message to a meeting of the Confederation of Indian Industry.

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He did not mention a desirable target level for the rupee which has fallen around 14 percent against the dollar since the start of 2011 and is the worst performing of Asia's 10 most-traded currencies.

The rupee's decline has fuelled India's inflationary woes, making imported goods such as foreign crude oil, on which the country relies, more costly.

India's annual inflation is running at near double-digits and is the highest among major global economies.

Unlike fellow emerging market giant China, India allows its currency to float freely.

Gokarn's comments contrasted with remarks he made earlier when he expressed hesitation about central bank intervention to support the rupee.

Gokarn said last month it would be a "risky strategy" if the bank were to "try and resist or try and do something for which we do not have a capacity".

Diminishing India's appeal to foreign investors and piling pressure on the rupee have been a slew of government corruption scandals, accusations of "policy paralysis" and a deteriorating fiscal situation.

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