Not worried about day-to-day fluctuation of rupee: RBI governor

Reserve Bank of India (RBI) governor Sanjay Malhotra on Saturday said market forces decide the value of the rupee with respect to the US dollar, and the central bank is not worried about day-to-day movement of the currency value.

Addressing the media after the meeting of Union finance minister Nirmala Sitharaman with the Reserve Bank board, Malhotra said the central bank focuses on the value of the rupee in the medium to long term.

On the impact of the depreciation of the rupee against the US dollar on price rise, the governor said 5 per cent depreciation impacts domestic inflation to the extent of 30-35 bps.

He further said the RBI took on board the current rupee-dollar rate while working out growth and inflation projections for the next financial year.

Replying to a question, Sitharaman said the Union cabinet has cleared the new income tax proposal and she hopes to have it introduced in the Lok Sabha in the coming week. Thereafter, it will be sent to a parliamentary standing committee.

Earlier this week, the rupee plunged 55 paise to close at an all-time low of 87.17 (provisional) against the US dollar on 3 February, as global market sentiments were impacted after the Donald Trump administration in the US slapped tariffs on Canada, Mexico and China.

In a special article recently published by National Herald, economist Prabhat Patnaik wrote: "This persistent long-term decline of the rupee is not because the rate of inflation in India is higher than in the US. It certainly is higher but that is not the primary cause of the rupee’s depreciation. On the contrary, an important reason for the rate of inflation in India being persistently higher than in the United States is the depreciation of the rupee, which raises import costs of a whole range of essential inputs such as oil....

"The primary cause of the rupee’s depreciation — hold your breath — is the preference of the Indian rich to hold their wealth in the form of US dollars rather than Indian rupees."

With PTI inputs