NEW DELHI -- India's central bank should intervene in the foreign-exchange market to stabilize the rupee, two senior advisers to the prime minister said Wednesday, as the local unit tumbled to a fresh record low against the U.S. dollar for a third straight session.
The comments from C. Rangarajan, chairman of the Prime Minister's Economic Advisory Council, and panel member M. Govinda Rao come as the rupee continues its free fall because of global risk aversion due to the euro-zone crisis and worries over India's high inflation and slowing economic growth.
The recent slump of the rupee, Asia's worst-performing currency this year, has increased calls for strong action from authorities, but the Reserve Bank of India has maintained that it would intervene in the currency markets only to manage volatility.
The dollar was quoted at 53.64 rupees at 0914 GMT, after trading as high as 53.75 rupees, compared with its previous peak of 53.515 rupees, reached Tuesday.
Mr. Rangarajan blamed the rupee's recent weakness on the temporary mismatch between capital inflows and a yawning current-account gap.
"The policy options are, if it is temporary, then the [foreign-exchange] reserves are there, which can be used by the RBI at an appropriate time," he said on the sidelines of a conference.
India's current-account gap is expected to exceed 3% of gross domestic product this fiscal year through March, from 2.6% last year as tepid global demand dims export prospects.
Asia's third-largest economy has traditionally relied on healthy capital inflows to fund the current-account deficit, but persistent euro-zone worries have prompted investors to flee emerging economies such as India, reducing overseas inflows to a trickle.
Earlier Wednesday, a senior finance ministry official said India has no plan to curb any capital outflow to help arrest the rupee's slide. The official declined to be named.
Finance Minister Pranab Mukherjee, however, admitted Wednesday that capital outflows are a matter of concern.
RBI Deputy Governor Subir Gokarn recently said the central bank will use all possible measures, including strategic capital controls, if the risk of the rupee depreciating escalates.
Moody's Investors Services Wednesday said India's heavy dependence on energy imports and persistently high inflation provide limited headroom for its regulated, import-dependent sectors to cope with higher import bills brought on by a weakened currency.
The dollar was quoted at 53.675 rupees at 0347 GMT after trading as high as 53.75 rupees, compared to its previous record high of 53.515 rupees reached Tuesday.
The dollar has surged more than 20% against the rupee since March on a combination of risk mitigation factors amid the Eurozone crisis and worries over India's high domestic inflation, falling economic growth and the rising risk of a widening budget deficit.
The rupee's fall has increased the clamor for measures to protect the currency.
"The major step from the central bank would be intervention, but there could also be other steps to boost dollar inflows such as further easing of rules on foreign borrowing by companies and on foreign investment limits in debt," said Partha Mukherjee, president of treasury and international banking at Axis Bank.
The Reserve Bank of India has said it will issue a "definitive statement" on the rupee at its mid-quarter policy review Friday.
