Exchange rate reflecting true value of rupee, says Chidambaram

Volatility and speculation have been largely contained in the currency market and it is reflecting the true value of the rupee, said finance minister P Chidambaram on Thursday.

"We believe that the exchange rate of the rupee today is a better reflection of its true value and we are confident that both volatility and speculation have been largely contained," said Chidambaram while addressing the second South Asian Diaspora Convention in Singapore.

The exchange rate witnessed a period of considerable volatility during May to August this year. The reasons are well known. Many currencies were affected, Chidambaram said.

The Reserve Bank of India took a number of steps - some that were clearly emergency steps - and once volatility was contained, some of those steps were reversed, he said.

The rupee declined close to 30 per cent against the US dollar between April and August. It touched a record low of 68.85 against the US dollar on August 28, but has recovered since then.

As part of several measures to attract foreign inflows, RBI has received $22.7 billion from special concessional windows for swapping foreign currency non-resident (bank) deposits and overseas foreign currency borrowings.

The special window allows banks to swap fresh FCNR (B) dollar funds, mobilised for a minimum tenor of three years, at a fixed rate of 3.5 per cent per annum.

RBI also allowed banks to borrow up to 100 per cent of their tier-I capital from overseas, which can be swapped with the central bank at a concessional rate of 100 basis points below the ongoing swap rate prevailing in the market.

The central bank did not provide the break-up of the fund flows from the two windows. The measures had helped the rupee to gain almost 11 per cent since they were announced.