Chidambaram Says India's Rupee Is `Way Above the Comfort Level'

Sept. 25 (Bloomberg) -- Indian Finance Minister Palaniappan Chidambaram said the rupee's exchange rate is ``way above the comfort level,'' though policy makers have few options because the currency is set by open markets.

``We can do nothing much directly,'' Chidambaram said in an interview today in Washington. ``If I have to help the exporters, I can only do so by fiscal steps.''

India's currency has climbed to the strongest in nine years as international capital flocks to the world's second-fastest growing major economy, after China's. While the gains may hurt exports, Chidambaram expressed confidence that economic growth will surpass 8.5 percent this year.

``In terms of economic management we're in a comfort zone,'' including on the issue of inflation, Chidambaram said. While declining to comment on interest-rate policy, he noted the central bank has said ``we are not worried about inflation.''

Chidambaram, 62, was in Washington for a meeting with Treasury Secretary Henry Paulson, who he said was ``upbeat'' about U.S. economic prospects. Paulson said American growth will probably exceed the International Monetary Fund's estimate of a 2 percent rate for 2007, according to Chidambaram.

The Indian finance chief also said his nation will have little impact from the U.S. subprime mortgage crisis. Chidambaram said Paulson will visit India next month, in part to discuss plans to increase investment in infrastructure.

Asked about Paulson's greater emphasis on China since taking office, including four trips with none yet to India, Chidambaram said it reflected fewer ``problems'' in U.S.-India economic ties.

`Realist' on Changes

Chidambaram acknowledged that India needs to press further in overhauling its economy and that China may continue to surpass the country in terms of growth rates. ``I am a realist,'' he said, noting that India's democratic system means policy makers must compromise as they seek to implement changes.

India's rupee has climbed more than 11 percent so far this year, reaching 39.72 per dollar today, the strongest since May 1998. Currency strategists at Standard Chartered Plc said the currency may advance to 38.50 within a month.

The government last month imposed curbs on companies seeking to borrow from abroad to slow capital inflows.

``What we've done is to tweak the regulations,'' Chidambaram said. The government is also periodically relaxing the conditions under which money can be taken out of the country.

The Reserve Bank of India ``will use the instruments that are available to any central banker, to remain in command over the money supply,'' Chidambaram said.

India's central bank aims to lessen volatility in the exchange rate without targeting the rupee's value, RBI deputy governor Rakesh Mohan said on Aug. 31.

`Orderly' Moves

Neither the finance ministry nor the central bank ``take a view on the rupee,'' as long as movements up or down are ``orderly,'' Chidambaram said, adding that India has a market- determined exchange rate.

The surging rupee is ``not good for our exporters,'' though many of them will ``quickly adjust,'' Chidambaram said today. When exporters re-price their contracts at the end of the year, some may opt to write new agreements in rupees, he said.

Foreign investors are buying shares and building factories in India to take advantage of the nation's growth. India's benchmark stock index has gained 22 percent this year as overseas funds bought a record net $10.7 billion of stocks.

Chidambaram also said India has no plan to channel some of its foreign-exchange reserves into a government-run investment company, such as Norway's, Singapore's or China's. The so-called sovereign wealth funds have burgeoned as governments sought higher returns on their holdings.

``I believe'' the central bank is diversifying its reserves out of dollars in favor of other currencies, Chidambaram said. ``A good part of our reserves'' are in other currencies, he said, adding that he doesn't oversee the holdings.