In volatile trading, the Indian currency swung wildly from a high of 56.38 to a lifetime low of 57.92 to the dollar on Monday.
Clearly, market players were not impressed by the RBI’s measures to stabilise the rupee — opening up offshore access to debt for companies in the manufacturing and infrastructure sectors and upping of the FII investment limit in government securities.
Despite being disappointed with the RBI measures to attract dollars, the Indian unit closed a tad higher at 57.01 against the previous close of 57.30. Apparently, the central bank intervened to pull the currency from the lows, said dealers.
“The RBI measures are disappointing. They are aimed at attracting foreign investments only into the debt market. Nothing has been done to attract investments into equities. The market was expecting dollar bonds to be launched for NRIs and other eligible investors,” said Mr Moses Harding, Executive Vice-President, IndusInd Bank.
Since the beginning of the current financial year, the rupee has depreciated by 12.6 per cent. This is the sharpest fall for any quarter.
Expected to strengthen
According to Mr N. S. Venkatesh, Chief General Manager and Head of Treasury, IDBI Bank, “The market was front running on expectations of RBI measures. The measures are positive… By this month-end the rupee is expected to strengthen to around 54-55 levels.”
Moody's Investors Service said the rupee’s decline will not raise the Government’s own debt service burden significantly, especially since most of its foreign currency debt is owed to multilateral and bilateral creditors with low annual repayment requirements.
Dr Rupa Rege Nitsure, Chief Economist, Bank of Baroda, said the RBI has done the maximum that it can. These measures now need to be supplemented by some firm fiscal measures to reduce fiscal deficit and improve the climate for capital expenditure for the rupee to recover on a sustainable basis.