FM says Rupee is in uncomfortable zone

Finance Minister P Chidambaram has said that unprecedented foreign investment flows into the rapidly growing economy have pushed the rupee higher into an ‘uncomfortable’ zone.

The Finance Minister added that the country was having problems in handling the rush of funds.

“We must find ways to manage a competitive exchange rate without hurting investments,” Chidambaram told a gathering in New Delhi.

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 Rs 40 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 per cent this year, led by record net overseas fund inflows of 16.54 billion dollars.

Agency