The rupee gained on Friday, owing to inflows, particularly from Essar Steel's $1-billion fund-raising programme. Both the Reserve Bank of India (RBI) and the finance ministry assured investors the situation was being watched closely and action would be taken whenever required.
Yesterday, the rupee closed at 59.26 against the dollar, against yesterday's closing of 59.58. This week, the rupee lost three per cent. It was also the rupee's seventh consecutive weekly loss.
Yesterday, it had fallen 1.5 per against the dollar, following US Federal Reserve Chairman Ben Bernanke's indication of a gradual withdrawal of its asset purchase programme, known as quantitative easing. However, intervention from the central bank prevented the rupee from touching 60/$ levels.
"We are watching and monitoring the situation...all steps that need to be taken will be taken," RBI Deputy Governor H R Khan said on the sidelines of an event. "All short-term, medium-term and long-term measures will be taken, as appropriate."
The country's high current account deficit (CAD) has made the rupee the most vulnerable among its Asian peers. Since May, the rupee has depreciated about 10 per cent against the dollar.
CAD for the quarter ended December stood at 6.7 per cent of gross domestic product, much higher than RBI's comfort level of 2.5 per cent. However, for the quarter ended March, it is expected to narrow to four per cent, owing to several steps taken by the central bank and the Centre to curb gold imports.
In New Delhi, Finance Minister P Chidambaram said there was no reason to panic. He assured RBI would take all necessary action. "We are watching the situation; RBI will take whatever action it has to take. We have good economic advisors. We will (do) whatever has to be done...My request is you should not react in panic; it's happening around the world," he said at a press conference to announce the decisions taken at a meeting of the Cabinet Committee on Economic Affairs on Friday.
Chidambaram said India wasn't insulated from what was happening in other countries. He felt the US Fed chairman's statement was misunderstood, he said. "It is my view that just as Bernanke's statement was misunderstood a month ago, yesterday's statement (too was) misunderstood."