FII inflows likely in coming days: FinMin

Later in the day chief economic advisor,Raghuram Rajan said,“The government,the RBI and Sebi are watching market developments and each one will take actions as warranted.”

He also said the government will announce another set of steps to make foreign direct investment easier to bring in more rupee into the economy while the pace of gold imports for June “should see a significant drop”.

Rajan categorically ruled out any further moves to restrict gold imports. “I should add that we are not contemplating any additional restrictive measures on gold and there is no reason for speculating on this basis,” he said in a note to explain the reasons why the rupee should recover its ground soon.

The strong comments and an intervention by the Reserve Bank of India to sell dollars made the rupee pull back to a slightly improved 58.39 at the close of the day. It is still however withing striking distance of Rs 60 to a dollar,a level it was expected to reach by next year.

Rajan explained that the decline of 7.5 per cent in the value of rupee since May 1,2013 “has been significant”. He,however,refused to accept that it was because of steep sell of by institutional investors from their holding of rupee debt after the US Federal Reserve’s remarks.

“I say partly,because despite the debt outflows,portfolio inflows between May 1 and June 10,2013 have been significant. On net,India has received $4.162 billion in equity flows,and lost $486 million in debt outflows,for a net inflow of $3.675 billion.”

The CEA noted that the rupee has fallen because of typical seasonal variations in the current account deficit. “Add on top of that the increased gold purchases as gold prices dropped,and I think we have the main reasons for rupee weakness,” his statement noted.

Market participants like Abhishek Goenka,CEO of India Forex Advisors said,“There is still nervousness in the markets but it is likely to see a short lived correction.” The rupee has fallen 16 times in the past 18 trading session.

RBI Deputy Governor HR Khan said capital flows cannot be taken for granted as quantitative easing by the advanced economies may not continue indefinitely and a significant proportion of capital flows are in the form of volatile FII and debt flows. “Vulnerabilities have increased mainly due to unusually high current account deficit,” he said.

Anindya Banerjee,Currency Analyst,Kotak Securities,said,“In June itself,the rupee has depreciated over 4 per cent and more against the other currencies like euro and pound. Fear of unwinding of quantitative easing by the US central bank and overly short positioning in dollar could be the reasons behind the move.”

A weak rupee does not augur well for corporates which have un-hedged foreign currency loans or large concentration of net imports.