With the rupee tumbling to nearly 60 to the US dollar, the worried government today sought to assure investors that domestic currency is not in a shambles and RBI has enough firepower to deal with the slide.
In a hurriedly called press conference, Chief Economic Advisor in the Finance Ministry Raghuram Rajan said the government, RBI and Sebi are alert to the developments and will take actions as warranted.
"We are not short of instruments... We have a range of instruments to call on as and when needed, we will call upon them," he said.
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The rupee hit life-time low of 59.93 to the dollar in early trade. It later recovered ground and closed at 59.57 on suspected RBI intervention.
The fall in currencies of emerging markets, including that of India, is being attributed to the statement by Federal Reserve Chairman Ben Bernanke that the US Fed may start scaling back its monetary stimulus programme later this year.
The stock market too witnessed a bloodbath with BSE Sensex plunging by 526 points or 2.74 per cent to 18,719.
Economic Affairs Secretary Arvind Mayaram said: "I think the markets are overreacting."
Planning Commission Deputy Chairman Montek Singh Ahluwalia said the RBI has enough "fire power" to deal with the rupee volatility and will intervene in the forex market as and when required.
Rajan said: "All options are open to us. We have to be very careful in thinking through options... Rupee is not in shambles. We should not be overtly pessimistic".
The government, he said, has been taking steps to attract foreign investment and is undertaking various reform initiatives including raising FDI and FII caps.
KPMG Director (Financial Risk Management) Kuntal Sur said outlook of the currency is expected to remain weak till the structural measures are taken to improve CAD and improvements of sentiments foreign investors.