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Investor Sentiment Will Turn In Favour Of Re: FM

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Amid concerns over declining rupee, Finance Minister P. Chidambaram said said the currency will find its level as steps being taken by the government to contain fiscal and current account deficits will improve investor sentiments. "We are committed to contain the fiscal deficit within the target and we are addressing how to finance the current account deficit. Sentiment will turn in favour of the rupee. I think rupee will find its level," he said in an interview with PTI.

The rupee had touched historic low of 60.76 level against the dollar on June 26 due to heavy capital outflows amid fears of early withdrawal of US monetary stimulus.

The Finance Minister, however added there is 'no good and bad value' that one could attach to the price of the rupee. "It's a price. Rupee is bought and sold. Dollars are bought and sold there is a price. It's also a function of supply and demand. It's also influenced by sentiment," he said. Unfortunately, Chidambaram said, it is not only the sentiment of Indian buyers and sellers that matters in the forex market.
"Even the sentiment of a lone gentleman (US Federal Reserve chairman Ben Bernanke) in the US impacts the rupee. And I have said Mr Bernanke statement is misunderstood or misinterpreted," he said.

Financing High CAD Year After Year A Challenge
The finance minister also said that financing current account deficit (CAD) year after year is a challenge and the only way to deal with the problem is by increasing exports. "The more difficult task is to finance the CAD. It was not even in vocabulary of discourse until a few years ago. It has become a serious issue because imports are rising faster than exports. And the gap has to be financed through invisibles and capital account.

"... but to do that year after year is a challenge. Long term answer to the CAD is to improve the exports," he told PTI in an interview here.

Chidambaram, who met Commerce Minister Anand Sharma earlier in the day, said: "We have reviewed the (export) figure this morning. First quarter figures are not encouraging."

CAD, which occurs when total imports of goods, services and transfers is greater than the exports, had hit a record high of 4.8 per cent of the GDP in 2012-13 as rising oil and gold import widened the trade gap to $195.7 billion.
Read: Sensex Rallies To One Month High, FIIs Turn Buyers

"I am sure some measures will be taken to reverse this trend (declining exports) and our exports will be back on a moderate growth path so that trade balance does not expand," he said. Chidambaram said the government had financed the CAD through foreign inflows last year and also added about $3.8 billion to the foreign exchange reserves.

The government has been taking steps to encourage overseas investment and is in the process of relaxing FDI caps in various sectors. A high CAD is putting pressure on the rupee which had touched a record low of 60.76 to a dollar amid outflow of foreign funds from debt securities on fears of early withdrawal of US monetary stimulus.

Gold imports have been a major cause of worry as it widens the CAD, which in turn puts pressure in the domestic currency. Gold and silver imports rose nearly 90 per cent to USD 8.4 billion in May. Cumulatively, in April-May the import of precious metals stood at $15.88 billion.

The government and the RBI have been taking steps to curb gold imports. The government has hiked import duty on gold three times in a year and recently raised it by 2 per cent to 8 per cent to curb demand.