RBI Tries To Save Rupee

Finally the Reserve bank of India (RBI) is taking steps to save our currency from its free fall. However the dichotomy was that the steps to save Rupee further helped it to fall and depreciate more against the US dollars. This was because the steps taken by the RBI were not very encouraging or at par with the streets expectation. Due to this the rupee, in the earlier trading session (traded at Rs 56.45 against US dollar) which recovered or appreciated by 1 per cent, gave most of these and closed the trade almost little lower (at Rs 57.01 against US dollar) benefitting marginally from the move. The following are the moves made by RBI (press release) in order to stop the rupee from further depreciation:

• To allow Indian companies in manufacturing and infrastructure sector and having foreign exchange earnings to avail of ECB for repayment of outstanding rupee loans towards capital expenditure and/or fresh rupee capital expenditure under the approval route. The overall ceiling for such ECBs would be USD 10 billion.
• Increased the limit of overseas investment in government bonds by USD 5 billion to USD 20 billion.
• The terms and conditions for the scheme for FII investment in infrastructure debt and the scheme for non-resident investment in Infrastructure Development Funds (IDFs) have been further rationalized in terms of lock-in period and residual maturity.
• Further, Qualified Foreign Investors (QFIs) can now invest in those mutual funds (MF) schemes that hold at least 25 per cent of their assets (either in debt or in equity or both) in infrastructure sector under the current USD 3 billion sub-limit for investment in mutual funds related to infrastructure.

One could recollect that Rupee made a new low last Friday touching 57.32 against the dollar. There are rumors on the market that if proper steps are not taken it may soon touch Rs 60 per dollar. We at DSIJ believe the issue of depreciating rupee has been ignored by the government in the past and we feel this could be one of the major headwinds for the country.

It is the right time to stop the rupee from a further fall rather than just passing the ball in one another’s (RBI and government) court. Strong and bold reforms are much needed from the government’s end and well-built intervention from RBI will curb the rupee which would help us to grow at a better rate and also protect our deficit from getting worst.