Mumbai: India may intervene in the foreign exchange market if capital inflows are "lumpy and volatile", central bank Governor Duvvuri Subbarao said after the rupee completed a sixth weekly gain.
"If the inflows are lumpy and volatile or if they disrupt the macroeconomic situation, we will do so," Subbarao said in a panel discussion at the International Monetary Fund (IMF) in Washington on Saturday. He told reporters that "we've not found the need to intervene so far."
The rupee has gained five per cent against the dollar in the past month, making it Asia's best performer, as global funds pumped a record $21 billion (Dh77 billion) into Indian stocks this year on optimism about the South Asian's nation's growth prospects.
Subbarao's comments came as countries from Brazil to South Korea took steps to slow currency appreciation amid rising capital flows into emerging and Asian economies.
"In recent months, when inflows have swamped most emerging market economies, several central banks have intervened in the forex markets," Subbarao said.
Surge in imports
"The reason we did not feel the need to intervene is because our absorption, driven by a widening current-account deficit as imports have surged on the back of a positive outlook on growth and investment, has also increased."
India's current-account deficit widened to a record $13.7 billion in the three months ended June 30 as an accelerating economy boosted imports of oil and machinery. The IMF last week raised its 2010 econ-omic growth forecast for India to 9.7 per cent from 9.4 per cent it estimated in July.
The rupee declined 0.5 per cent to 44.4350 per dollar at close of trading on October 8 in Mumbai, paring its advance during the week to 0.3 per cent on concern importers will step up dollar purchases and the central bank may intervene in the foreign exchange market.
In the past month, the Bombay Stock Exchange's Sensitive Index has gained 8.6 per cent to a near record 20,250.26.
"Our intervention will be to keep liquidity conditions consistent with activity in the real economy and to maintain financial stability," Subbarao said. "And not to stand against developments driven by changing economic fundamentals."
Meanwhile, India's foreign-exchange reserves rose $2.6 billion to $294.2 billion in the week ended October 1, the central bank said.
Foreign-currency assets rose $2 billion to $266.5 billion, while the nation's gold reserves increased $508 million to $20.5 billion in the week, the Mumbai-based Reserve Bank of India said.
The change in foreign-currency assets is partly because of the change in the value of the dollar against the euro, yen and other currencies during the period, the central bank said.
Total reserves climbed $13.8 billion in the past year, the bank said. The reserves comprise overseas currencies, gold and special drawing rights with the IMF.
