RBI booster fails to perk up markets,rupee

HOPING to further support the embattled rupee and attract dollar inflows,the Reserve Bank of India on Monday announced a relaxation in some key investment and borrowing limits.

HOPING to further support the embattled rupee and attract dollar inflows,the Reserve Bank of India on Monday announced a relaxation in some key investment and borrowing limits. But the moves failed to enthuse the markets,with industries and analysts saying that the economy needs bolder,more fundamental reform to fight the mounting fiscal deficit.

The central banks much-awaited booster dose for the currency included an increase in the limit on foreign investment in government bonds to $20 billion from $5 billion and a hike in the external commercial borrowing limit for new projects by $10 billion,causing the rupee to trim earlier gains.

The rupee,which had rallied earlier on Monday,gave up its entire 1.2 per cent gain and slipped back to above 57 levels after the announcements. The 30-share BSE index too erased gains and fell 0.53 per cent to close at 16,882.16 points,after rising earlier by as much as 0.93 per cent in early trade. Finance Minister Pranab Mukherjee,due to step down on Tuesday to run for the post of president,had said on Saturday that some announcements would be made on Monday.

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Analysts said the government needed to improve its economic fundamentals,including addressing its current account deficit,to bolster the rupee.

Planning Commission Deputy Chairman Montek Singh Ahluwalia tried to salvage ebbing investor morale and said more such measures as announced by the RBI on Monday are in the offing to revive growth momentum and boost the inflow of foreign funds. We will soon see a set of measures apart from what has also been announced,particularly on implementation of large projects on which the Prime Minister has set up new mechanism to move things faster, Ahluwalia said.

The steps announced so far are probably minimal at this time but could lead to some inward capital flows if this is supported by stronger fundamentals, said RV Kanoria,President,FICCI.

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