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To stop Indian rupee from breaking 60-mark,NRI,sovereign bonds must: BofA-ML

We believe the hard reality is Rs 62/USD: DSP Merrill Lynch

Written by Press Trust Of India | New Delhi | Published: July 31, 2013 4:22 pm

The Indian rupee is not likely to settle down until the Reserve Bank of India (RBI) is able to recoup the forex reserves,says a Bank of America Merrill Lynch (BofA) report,adding the country needs to issue NRI,sovereign bonds to hold Rs 60/USD level,

Related: RBI monetary policy review leaves rates unchanged

The Indian rupee today breached the 61-mark again by falling 60 paise to 61.07 against the dollar in early trade at the Interbank Foreign Exchange market,on heavy month-end demand for the US currency amid growth concerns.

Related: Highlights of RBI monetary policy review

RBI announced several measures to contain the rupee fall since July 23. These measures have stabilised the Indian rupee at about Rs60/USD.

“Still,we believe the hard reality is that expectations cannot but float up to say,Rs 62/USD,unless the RBI replenishes its armory by issuing NRI or sovereign bonds,” Indranil Sen Gupta India Economist DSP Merrill Lynch (India) said in a research note.

Related: Take urgent steps to contain CAD or risk further Indian rupee fall,says RBI

According to BofA-ML,it would be difficult to sell more than USD 30 billion to fend off contagion and since the RBI is expected to “buy barely USD 7.5 billion this year,it,sooner or later,would have to raise FX through NRI or sovereign bonds.”

The note comes in the backdrop of speculation that the Government and Reserve Bank could look at raising money from either NRIs or through a sovereign bond issue.

The Indian rupee has depreciated by more than 13 per cent since May this year.

Related: India rupee erases all gains since RBI tightening measures

The depreciation was intense ever since the May 22 announcement by the US Federal Reserve that it may consider a withdrawal of its liquidity injecting stimulus programme in a phased manner,which led to a sell-off by investors.

On rate cuts,the report said the central bank is expected to cut policy rates 25bp in October and January.

The RBI,in its First Quarter Review of Monetary Policy yesterday,kept all the key interest rates unchanged.

Lowering the GDP growth projection for the current fiscal to 5.5 per cent from 5.7 per cent,RBI yesterday said the external sector is the “biggest threat” to economic stability and asked the government to take urgent steps to rein in the high current account deficit.

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