Rupee Gains `Not a Concern' as Infosys Calls for Intervention

A rally in the Indian rupee, Asia’s best performer in the past month, is “not a matter of concern,” yet, Finance Minister Pranab Mukherjee said, allaying concerns expressed by Infosys Technologies Ltd. that a strengthening currency will hurt exports.

“I would not like to have any unrealistic appreciations or depreciations,” Mukherjee, 74, said in an interview to Bloomberg UTV at Birbhum in the eastern Indian state of West Bengal yesterday. “We should watch the situation but it’s not a matter of concern. We need not press the panic button.”

The local currency has advanced 5.2 percent in the past month and become Asia’s best performer, prompting Infosys, the nation’s second-largest software maker, to say the trend will “kill the export industry.” Reserve Bank of India Governor Duvvuri Subbarao said yesterday the central bank will intervene if inflows are “lumpy and volatile” and disrupt the economy.

Subbarao said on Oct.9 that India’s current-account deficit has boosted the nation’s ability to absorb inflows and therefore the central bank “did not feel” the need to intervene like most emerging markets.

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 International Monetary Fund on Oct. 6 raised its 2010 economic growth forecast for India to 9.7 percent from 9.4 percent it estimated in July.

Foreign Flows

The rupee gained as global investors poured a record $23 billion into local shares and $10 billion in rupee debt this year to profit from India’s economic expansion.

Exchange rates dominated the annual meeting of the International Monetary Fund in Washington last week on concern that officials are relying on cheaper currencies to aid growth, risking retaliatory devaluations and trade barriers. Central banks intervene by buying or selling their currencies to influence exchange rates.

Infosys called on the central bank to intervene and reduce the volatility of the currency.

“We’ve seen the rupee go from 52 to 39 and back and forth,” Chief Financial Officer V. Balakrishnan said yesterday in Bangalore, where Infosys is based. “It will kill the whole export industry. The RBI has no choice but to intervene at some point in time, like every other country. I’m not the RBI governor, but if I was, I’d do it now.”

India has allowed its currency to gain even as central banks from Brazil to Israel and Thailand intervened in foreign- exchange markets. Japan sold yen last month for the first time since 2004 and Brazil warned of a global “currency war.”

Intervention Signal

Reserve Bank Deputy Governor Subir Gokarn signaled yesterday the central bank may intervene in the currency markets to shield exporters.

“It comes down to a balancing act between making sure there’s enough money to finance your current-account deficit, but at the same time not do any serious damage to people whose competitiveness is undermined for no fault of their own,” Gokarn said at a conference organized by Bloomberg UTV in the north Indian city of Chandigarh.

Subbarao said yesterday that the Reserve Bank may intervene if the inflows disrupt the economy.

“That remains our policy but I cannot comment when we will intervene or when we will not,” Subbarao said after the central bank’s board meeting in Chandigarh.

Economists including Jahangir Aziz of JPMorgan Chase & Co. said recent concerns about the strengthening currency “appear to be overblown.”

‘Little Sensitivity’

“Exports show little sensitivity to changes in the exchange rate,” Aziz wrote in a note dated Oct. 14. “Changes in external demand have a much larger impact.”

India’s merchandise exports have grown 28.6 percent in the five months through August, according to commerce ministry data.

Mukherjee said funds are flowing into emerging markets such as India because of a “slow recovery” in the U.S. and Europe.

“As soon as the recovery in Europe and America begins, I think the inflow will be a little reduced,” he said.

The Bombay Stock Exchange’s Sensitive Index has rallied 15 percent this year to near a record, making it the best performer among the world’s 10 biggest stock markets.

“Of course, I would not like to have any volatility in the stock market. Already it is there little bit,” Mukherjee said, when asked if the government plans to check foreign investments into the stock market. “At what time the cap is to be put, that is a matter of assessment.”

He said the central bank, the stock market regulator and the government are all “watching this” and “as and when the situation demands, we will intervene.”