Believe us today like when the going was good: Dr. PB

At Monday’s encounter with the media, there was an apparent sense of frustration in Treasury Secretary Dr. P.B. Jayasundera over the manner in which markets and businesses have failed to respond to what he described as ‘fundamentals” but being swayed by speculation.
A series of monetary and fiscal policy measures effected from as far back as mid-November last year starting from the 2012 Budget presentation are part of these fundamentals, apart from regular pronouncements by decision makers of such policies.
However, some analysts have opined that the flipside of regular or successive policy actions between short intervals could also mean previous moves having failed in achieving desired objectives.

This, along with some pronouncements failing to materialise (exchange rate will stabilise below Rs. 125 for the dollar but in turn crashing to Rs. 133.50 and hike in interest rates will check high credit growth – in February the rate of increase was still high at 34%) or getting delayed (for example $ 75 million inflow from India’s ITC to build Sheraton Hotel has been coming now for several months), have caused a setback to the level of confidence in both the Treasury and the Central Bank.
Furthermore, inconsistent policy has been another hiccup for the Government. Most recent case was accommodating reconditioned motor traders’ request to increase the age limit of vehicles, in less than a month after the original rule was imposed.
Given the impact of recent measures and downturn in the economy, several analysts have said the targeted 6.2% budget deficit is unattainable too.
Questions from the media to Treasury Chief did cover some of these issues on Monday, prompting Dr. Jayasundera to reiterate past statements or be emphatic about the Government’s standpoint.
He admitted that there could be an issue of lack of confidence but on his part he expressed confidence that recent measures would stabilise markets as well as help boost exports, the import replacement industries as well as energy conservation.
The Treasury Secretary also said people (markets and private sector) must have greater trust in recent policy measures as well as in those who took decisions. “When the economy was growing at 8% if people believed us and our actions, why cannot the very people do the same today (on our actions)?” Dr. Jayasundera queried at the media conference.
“We expect stability in markets in May,” Dr. Jayasundera said, suggesting that markets would factor in moderation in imports and credit expansion when latest data was available. “No one can go on speculating regardless of limits or fundamentals. Sanity will prevail,” he added.
The Treasury Chief also made it a point to note that the IMF’s recent World Economic Outlook has forecast oil to be $ 98 per barrel in 2012 whereas it is nowhere close with the range being $ 120 level.
For argument sake, “Let’s assume we are incompetent whereas the US or India’s policy makers are competent. However, even those countries have got certain economic forecasts and actions wrong but does that mean their (US and Indian) people and markets have lost confidence?” was another poser from Dr. Jayasundera.
At the press conference he asserted: “The recent spike is due to speculation more than on fundamentals. I reiterate that the US Dollar exchange rate will stabilise below Rs. 125. There is no reason why the rupee’s value has to go beyond that. The monetary and fiscal policy measures taken recently will ensure greater stability.”
The Treasury Chief explained that policy rates were increased to effect an upward revision in interest rates to curb credit growth, whilst taxes on vehicles, along with revision in fuel prices, were implemented to discourage imports. There were also subsequent adjustments in electricity tariffs. He said that even after these changes if the economy wasn’t responding or adjusting and if people wanted to import at a higher exchange rate, then it showed the strength of the economy.
He suggested that a mix of using reserves to defend the rupee as well as allowing market flexibility to adjust itself was the way forward. However, the Treasury Chief warned that if speculators persist disregarding the fundamentals, then the Government would intervene. “If the element of speculation goes beyond tolerable levels, then we will intervene,” he stressed.
Whilst Dr. Jayasundera’s briefing was on Monday morning, by close of business, the rupee ended 0.2% down as importers bought dollars and the market appeared to have ignored the warning from the Treasury boss. Dealers said a State bank, through which the Central Bank usually directs the market, sold about $ 6 million to support the rupee though that was not adequate to stop the fall.