As policymakers,we can’t… tell markets how to behave: D SUBBARAO

MARCH 30,2012

When capital flows are far in excess of CAD,the exchange rate appreciates… If flows are volatile,that will be reflected in the exchange rate movement too. The RBI then has to make a judgement on whether or not to intervene… This is not as straight-forward… If we buy foreign exchange,volatility may be smoothed and exchange rate appreciation contained,but systemic rupee liquidity goes up,and could add to inflationary pressures.

FEBRUARY 22,2012

Those emerging economies that had a surplus or a small deficit were less hit than countries that have a sizeable deficit like India,and that deficit was growing. So the rupee depreciation was a result of external flows practically thinning out and driven by the dynamics of the current account deficit. I cannot really speculate on how the currency will move. But certainly I’d like to see less volatility in the market…

SEPTEMBER 24,2011

It is well known that Einstein could not reconcile to the probabilistic nature of quantum mechanics all through his life. He famously said: “God does not play dice.” Less well known perhaps is the retort of his friend and mentor Niels Bohr who said: “Albert,stop telling God what he can or cannot do.” Similarly,it is possibly the case that all market signals are not objective. But as policymakers,we cannot presume to tell markets how to behave.

MAY 10,2011

In India’s case,the rupee’s exchange rate has been virtually flexible in the past two years,as we have not intervened in the foreign exchange market. The small increase in reserves reflects accruals,interest earnings and valuation changes. This policy has served the economy well,as it has allowed the exchange rate to serve as a buffer,depreciating to help the economy when it was weak and appreciating to reduce excess demand when it was strong.