The finance ministry has denied a report that said the government was discussing devaluing the rupee as a way to boost exports.
The rupee fell 0.28 percent to 67.0750 to the dollar on Thursday, its lowest level since August, after television channel CNBC-TV18 reported that the commerce ministry was going to propose a devaluation.
The rupee recovered some of its losses later in the day after the Reserve Bank of India (RBI) -- which buffers rupee volatility with Forex reserves -- stepped in to stem the fallout, and Economic Affairs Secretary, Shaktikanta Das, told reporters there was no such devaluation plan under consideration.
"The value of rupee is determined by the market and there is no plan to change policy," Das said. "Reports that the government wants to devalue the rupee are false."
Following the CNBC report, Commerce Minister Nirmala Sitharaman tweeted that she had not told a reporter the government was discussing a devaluation. But her comments stopped short of denying the ministry was weighing such a proposal.
I had no conversation on devaluation of any currency with any news correspondent.Any quotes/mentions referring to me on this topic baseless.
— Nirmala Sitharaman (@nsitharaman) September 15, 2016
Rupee has been one of worst performing currencies in Asia so far this year. The RBI overlooks the country's exchange rates and as of July had indicated the rupee was sufficiently devalued and weakening it further would result in inflationary pressures.
A commerce ministry official told Reuters that Commerce Ministry had favoured the demands of exporters, who have been lobbying with the department for a rupee devaluation to make exports cheaper.
India's merchandise exports fell 6.8 percent in July from a year earlier, according to government data showing weak global demand. Imports fell faster, by 19 percent, on account of low oil prices.
The Commerce Minister comments at a time when the Reserve Bank of India is in the process of setting up the Monetary Policy Committee, a body that will comprise both RBI and external members to decide interest rates.
Currency devaluation is seen as a controversial move taken by governments to make their exports more competitive. China has weakened Yuan several times in the past despite international pressure to contain the tactic.