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Indian central bank blames government for rupee woes
August 29, 2013 , 7 : 15 pm GST
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A customer counts currency inside a currency exchange shop in Kolkata August 29, 2013. Photo - REUTERS/Rupak De Chowdhuri
India's central bank governor blamed the government Thursday for failing to reduce the current account deficit, which has caused the currency to spiral and left the country vulnerable to an economic crisis.
Less than a week before he steps down from the five-year post at the Reserve Bank of India (RBI), Duvvuri Subbarao said that pointing to factors outside India did not fully explain the rupee's rapid depreciation.
His comments are likely to antagonise the government, which has sought to portray the falling rupee as a consequence of the global economic downturn and pressure on emerging countries.
"We will go astray both in the diagnosis and remedy if we do not acknowledge that the root cause of the problem is domestic structural factors," he said in prepared remarks for a lecture in the financial capital Mumbai.
"At its root, the problem is that we have been running a current account deficit well above the sustainable level for three years in a row, and possibly for a fourth year this year."
Along with the troubled currency and deficit, India has seen its growth reach decade lows this year, and speculation mounted Thursday that it may need to seek a bailout from the International Monetary Fund.
Subbarao said reducing the current account deficit, the broadest measure of trade, was a crucial task outside of his domain.
"RBI has very little policy space or instruments to deliver the needed structural solution. They fall within the ambit of the government," he said.
He said it was however the job of the RBI to stabilise market volatility.
The central bank has taken a number of measures in recent weeks to support the spiralling currency as it hits a string of record lows.
A decision announced Wednesday to sell dollars directly to major oil importing companies appeared to help, with the rupee closing sharply higher at 66.55 to the dollar on Thursday.
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