Print

Mail

wiki links

India struggles over rush of funds

Indian Finance Minister P. Chidambaram said unprecedented foreign investment flows into the rapidly growing economy have pushed the rupee higher into an "uncomfortable" zone.

Chidambaram said the country was having problems handling the rush of funds.

"We must find ways to manage a competitive exchange rate without hurting investments," Chidambaram told a conference organized by the Hindustan Times newspaper late on Friday.

The rupee is in an "uncomfortable zone," he said.

Lifted by a tide of overseas money into domestic shares following a cut in US interest rates last month, the currency strengthened beyond the psychologically key 40 rupees to the dollar barrier.

"This is a new situation," Chidambaram said. "But we are not alarmed by it. We will gain mastery."

The rupee finished the week on Friday flat against the dollar at 39.3, a nine-and-a-half year high.

Dealers say the central bank has been buying dollars to restrain the rupee's rally and protect exports which have been slowing.

But analysts say there is relentless upward pressure on the rupee and expect it to gain further as foreign investors buy shares and pour money into plants and infrastructure projects to exploit the booming economy.

As of Friday's finish, the benchmark Bombay Stock Exchange Sensitive Index, or Sensex, had gained nearly 34 percent this year, led by record net overseas fund inflows of US$16.54 billion.

Some analysts say the rupee could be at 38 to the dollar by the middle of next year or even lower.

The rupee has already risen by over 11 percent this year against the dollar, making it Asia's best-performing currency.

Chidambaram said that as long as investors were getting good returns, "I don't believe they are waiting to take their money out."

The benchmark Sensex stock exchange index has risen over 15 percent since the US Federal Reserve cut interest rates by 50 basis points on Sept. 18.

"The liquidity outlook for India equities remains positive ... but the magnitude remains excessive by historic[al] standards," said Bharat Iyer, head of equities at J.P. Morgan Chase.
This story has been viewed 1125 times.