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The Reserve Bank of India on Wednesday came out in defence of a fall in the Indian currency by saying that the fundamentals of the Indian economy were very strong and there should not be any room for anxiety.

In a statement issued in Bombay, RBI Governor C Rangarajan said that the rupee fall is of the order of 2.5. per cent in relation to the US dollar, which is far less than in the case of East Asian currencies, which have experienced unusual turbulence of late.

The Indian currency, after a prolonged period of stability at Rs 35.70-75 levels till August 20, started weakening over the past two weeks, crossing the psychological barrier of Rs 36. It stayed for quite some time at Rs 36.25-30 levels, but gradually went on depreciating.

On Tuesday, the rupee hit a 19-month low of 36.73 but recovered smartly to Rs 36.58-60 following massive RBI intervention.

The governor's stated that the RBI will continue to intervene both in the spot and forward markets to reduce volatility and would ensure orderly conditions in the foreign exchange market.

The statement issued said the current account deficit has remained low and is estimated to be at 1.0 per cent of the gross domestic product for 1996-97. It is not not likely to exceed 1.5 per cent in 1997-98. The capital inflows under the various routes including non-resident deposits, portfolio investments, direct investments and external commercial borrowings are steady and strong, the governor said.

Rangarajan said that the foreign exchange reserves increased by US dollar 5.2 billion in 1996-97 and by a further US dollar 4 billion in the current financial year till the end of August 1997.

The recent volatility seen in the exchange rate has been caused in a large measure by the rush to cover unhedged positions. There has been no basic change in the fundamentals of the economy which continue to remain strong.

Market participants both in the spot and forward markets are, therefore, advised to take note of the basic trends, he said.

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