RBI yet to take a view on inflows: Mohan

The central bank has stepped up dollar purchases to prevent the rupee from gaining further.

The Reserve Bank of India (RBI) was yet to take a clear view on record capital flows, after the rupee gained the most in 33 years, Deputy Governor Rakesh Mohan said today.

The country''s best economic performance in 60 years has led overseas investors to buy a record $18.6 billion in stocks and bonds this year. That has helped the rupee gain 12.3 per cent since January and pushed the benchmark stock index above 20,000 points for the first time, leading to the imposition of some capital controls.

"We do intervene in the market, but we would like the exchange rate to be market-determined,'' Mohan said in New Delhi. 
 

NET INVESTMENT BY FIIs (Rs cr)
Month	Equity	Debt	Month	Equity	Debt
Jan	160.30	-2174.00	Jul	18,468.90	-1,164.80
Feb	5595.40	535.30	Aug	-7,526.80	471.40
Mar	1403.30	2164.00	Sep	18,948.50	2,775.50
Apr	5533.70	791.00	Oct	17,325.40	2,379.30
May	4574.40	1360.20	Nov*	-3,839.60	-220.80
Jun	7169.60	-541.43	* Till Nov 21, 2007

The finance ministry in August imposed curbs on companies seeking to borrow from overseas and the Securities and Exchange Board of India (Sebi) on October 25 tightened rules on overseas investment in shares through so-called participatory notes.

The rupee surged as high as 39.185 against the dollar on November 7, the highest intraday level since February 20, 1998.

The central bank has stepped up dollar purchases to prevent the rupee from gaining further and hurting exporters after it recorded the biggest annual gain in more than three decades.

Mohan said that while the central bank was successful in cooling down some sectors of the economy, it would use all instruments needed for its monetary policy objectives. The objectives of the policy were guided by financial and price stability, besides sustained growth.

"We have followed an unorthodox approach in the conduct of the monetary policy,'' Mohan said. "We have succeeded in cooling down certain parts of the market. We will do whatever is necessary both upwards and downwards when the market situation demands.''

RBI on October 30 raised the ratio of deposits that lenders must put aside for the fourth time this year to curb inflation. The move helped inflation hold near a five-year low.

Wholesale prices rose 3.11 per cent in the week ended November 3 from a year earlier, compared with a 2.97 per cent gain in the previous week, the government said last week.

The country's exposure to the US mortgage market had been small and the economy had so far been insulated from the sub-prime mortgage crisis, Mohan said.

Losses from sub-prime mortgage foreclosures along with slower growth and falling house prices could reach as much as $300 billion, according to the Organisation for Economic Cooperation and Development (OECD).

"Recent economic news points towards a more protracted economic adjustment,'' the OECD said in a report released in Paris. "A recession in the US is now seen as more likely than before by some observers.''