24/08/2015 11:41 AM IST | Updated 15/07/2016 8:25 AM IST

RBI Rajan Says India Could Trim Dollar Kitty To Save Rupee

World Economic Forum ( Eric Miller" data-caption="NEW DELHI/INDIA, 08NOV09 - Raghuram Rajan in India's Next Aspiration Session. Participants captured during the World Economic Forum's India Economic Summit 2009 held in New Delhi, 8-10 November 2009. Copyright (cc-by-sa) © World Economic Forum ( Eric Miller" data-credit="World Economic Forum/Flickr">

RBI boss Raghuram Rajan has said India will not hesitate to use its USD 380-billion forex reserve to shore up the rupee. Rajan's comments come in the backdrop of a global meltdown in stockmarkets, triggered by uncertainty over China's future growth, and a steady erosion in the value of the rupee since early August.

The rupee slumped nearly 1 per cent to hit a low of 66.49 per dollar on Monday, its lowest since September 2013. The selloff in the rupee weighed on the domestic markets too, with the BSE Sensex crashing over 1,000 points in morning trade.

"Many of you watching markets this morning worried about volatility... India is in a good condition. RBI won't hesitate to intervene on rupee," NDTV quoted the governor as saying.

Rajan was addressing a top bankers summit in Mumbai and emphasized that "India is in a better position compared to other markets."

The rupee is now down a little over 6 percent versus the US dollar, whereas other emerging market currencies, such as Brazilian real, Turkish lira, Thai baht, Malaysian ringgit and Indonesian have slumped between 8.5 percent and 25 percent.

However Rajan cautioned that too-active an intervention by central banks, as in the case of China, led to disasters such as what the financial world was now witnessing.

“It is not the role of the central bank to elevate sentiments unduly, to deliver booster shots to the stock market so that it can soar for a while, only to collapse when reality hits,” Rajan told a conference in Mumbai, according to a Bloomberg report, “We do not have to look far beyond our borders to see the consequences of such boosterism.”

The depreciation in the rupee hits foreign investors and diminishes their returns. Analysts say foreign funds have started selling shares aggressively because of the rupee fall.

As of 10.20 a.m., the rupee traded at 66.35 per dollar, down 0.8 per cent against Friday's close of 65.83 against the greenback.

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