India's troubled economy did not rebound in the quarter that ended in June but will begin to in the rest of the financial year, the finance minister said on Thursday, after the rupee, which he said was "undervalued," hit another record low.
The rupee has tumbled 17 percent since May, leading a global selloff in emerging market currencies on fears of higher borrowing costs and tighter supplies of cheap cash from the United States.
In a briefing after meeting the finance minister for more than two hours, RBI governor defended liquidity-tightening measures taken to protect the currency and said the country had adequate foreign reserves to keep up that fight.
India's currency woes are exacerbated by a wide current account deficit and slow action on policies analysts say are needed to breath life into an economy growing at its slowest rate in a decade after years of rapid expansion.
"Growth slowed down to 5 pct in 2012/13 and we expect that the growth trend will remain flattish in the first quarter, but even so, we are in better health than many other countries in the world," P Chidambaram said.
"Therefore there is no reason for excessive or unwarranted pessimism. We expect that growth will pick up in Q2 to Q4."
India is due to report on August 30 GDP data for the first quarter of the 2013/14 fiscal year.
Briefing reporters after meeting Reserve Bank of India governor Duvvuri Subbarao, Chidambaram described as "unacceptable" market volatility that saw the rupee slumping to 65.56 against the dollar on Thursday.
Chidambaram vowed he would meet or beat a tough current account deficit target of $70 billion and a fiscal deficit target of 4.8 percent despite the current problems. He defended measures taken so far and ruled out capital controls to stop the flow of money out of the current.
"There was - and is - no intention to introduce any type of capital control, including controls on repatriation" he said.
Chiming with outgoing RBI chief Subbarao after their meeting in New Delhi, Chidambaram said the government was exploring "structural measures" to reduce the current account deficit. Neither of them elaborated.
Subbarao said central bank liquidity measures imposed in July to push up short term rates in the financial system would stay in place as long as the rupee remained volatile.
"I believe our forex reserves are adequate to manage the current situation," he told reporters, but emphasised that the bank was not targeting a specific level of the rupee.
"Even when the governor goes to sleep there are some of our officers who keep tracking and we will respond to (developments) as may be necessary," Subbarao said.