Monday, March 3, 2008

Rupee won't rise as fast as last year, says FM

Rupee is unlikely to appreciate as sharply this year as last year, when its gains were "extraordinary" and the economy will grow close to 9%, FM Chidambaram said on Sunday.

While he aims to contain inflation at about 4%, this would depend on how world food and commodity prices move in the coming year.

The rupee gained more than 12% against the dollar in 2007, largely driven by huge capital inflows, rising interest rates and a weakening dollar, hurting some labour-intensive export sectors and complicating management of monetary policy.

"I don't know whether the rupee will appreciate but even if it does I don't think it will appreciate as sharply as it did in 2007," Chidambaram said. "2007 saw an extraordinary appreciation of the rupee."

The partially convertible rupee closed at 40.01/02 per dollar on Friday. It hit a near-decade high of 39.16 last November, driven up by portfolio inflows into the stock market, but last month slipped to a five-month low of 40.25.

"We would like a real GDP growth of 9%-plus, which means we must contain inflation at 4% or below. That is the ideal situation," FM said.

"But the ideal is an aspiration. What we will achieve is, I hope, pretty close to the ideal."

The Economic Survey 2007-08 said however that keeping expansion at 9% a year would be a challenge due to inflation and infrastructure constraints. It warned raising growth to double digits, which has been a mantra of this government, would be even harder.

While government has to bring the fiscal deficit down to 3% of GDP in 2008-09, FM has a aggressive target of 2.5% from an estimated 3.1% for this financial year.

No comments: