RBI will only intervene to arrest volatility in forex market

The Reserve Bank of India said on Tuesday it would intervene in the foreign exchange market only to arrest volatility even as the Rupee weakened to 50.71 against a dollar.

"We intervene when there is a very strong movement in a particular direction or extreme volatility and the objective is to smooth that volatility and not fix a rate," RBI deputy governor Subir Gokarn told reporters in Mumbai.

The rupee has depreciated about 11 per cent so far in 2011.

The domestic currency was trading at a 32-month low of Rs 50.68 against a dollar in afternoon trade today, after seeing a high of 50.71 in morning trade.

The Indian Rupee is the fourth most depreciated

currency in the world and most depreciated in Asian continent.

"The movement is a demand supply factor. This is happening globally and some countries are intervening to prevent the depreciation. But for the moment, our policy remains as stated," he said.

Gokarn further said that the RBI would opt for open market operations to manage liquidity in the system only if there is a stress and not to influence government bond yields.

The new 10-year bond yield was quoting at 8.93 per cent.

"Our objective is to manage liquidity. If we find there is stress on liquidity, we would take action to ease the stress. . . not with direct objective to target bond yields. If the underline driver of high bond yield is liquidity, then we should address liquidity issues," he said.