More measures to stabilise Re likely

The downward march of the rupee despite two rounds of capital account measures is likely to force the government and the Reserve Bank of India

Written by George Mathew | Mumbai | Published:May 14, 2012 12:29 am

The downward march of the rupee despite two rounds of capital account measures is likely to force the government and the Reserve Bank of India (RBI) to launch the next round of stronger measures to boost capital inflows and stabilize the currency which is sprinting towards the 54/USD mark.

“The measures announced so far don’t seem to have worked… more could be on the way. It’s clear that the RBI doesn’t want to use up forex reserves by selling dollars and propping up the rupee,” banking circles said.

Measures like taking oil importers out of the forex market and providing them with dollars directly from the RBI,further tariff or restriction on gold imports and rebates could be on cards,they said.

Some of these measures were in force when the rupee faced a rout in the 2008 global crisis but later withdrawn when normalcy returned. Though a fuel price hike would boost the rupee,the market doesn’t expect this to materialise easily as coalition political dynamics has impacted the government’s maneuverability. The RBI has been intervening heavily in the forward market to cushion the impact on the liquidity. The sharp rise in fiscal deficit and current account deficit has made the situation difficult for the policy makers.

The RBI has sold $20.13 billion in the spot market in fiscal 2011-12 to prop up the sliding rupee. On top of this,the central bank has been increasingly selling in the forward market with cumulative net forward sales touching a high of $3.23 billion in March.

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