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FM blames rupee meltdown on turmoil in Asian markets

The exchange rate of the rupee against the dollar has appreciated and displayed reasonable stability in the first half of July after showing steady depreciation up to June 23.

Finance Minister Yashwant Sinha told the Rajya Sabha that the exchange rate of the rupee is market-determined. The developments in the East Asian markets have had their impact on market sentiments in India also and expectations contributed to the pressure on the rupee.

Several other developments in May and June also contributed to pressure on the rupee.

The minister said the RBI has taken several measures to contain volatility in the value of the rupee and to ensure orderly conditions in the foreign exchange market.

These measures include purchase and sale of foreign exchange by the RBI in both the spot and forward segments of the foreign exchange market, which are often supplemented by deployment of suitable monetary measures.

On the decline in the stock market, Sinha said there has been some partial recovery. He attributed this problem to various factors including expectation of investors regarding the performance of the corporate sector and the economy in general.

Sinha said that foreign investment flows depend on a number of factors including investment opportunities, favourable investment climate and policy environment, size and potential growth of the domestic market. He said no single factor can be identified for influencing foreign investors' interest. The overall impact of the recent developments on foreign investment flows to India would be felt over a period of time.

The government's general approach, the minister said, in countering the effect of the sanctions is to try to get a better understanding of our position on the part of other countries and also to encourage private capital flows.

To this end, the government is pursuing its stated policies of encouraging inflows of foreign direct investment, investment from Non-Resident Indians and from foreign financial institutions while ensuring that our domestic economic situation is strong.

UNI