The Government and the central bank need to jointly help improve sentiments to get investor confidence back in the Indian currency, say experts.
Reversing the recent liquidity tightening measures and decoupling the strong links between all the markets could help, treasury officials said.
Mohan Shenoi, President – Group Treasury, Kotak Mahindra Bank, said: “Interest rates, currency, debt and equity markets are feeding on each other. With the liquidity tightening measure announced in July, an artificial link has been established which needs to be broken.
“FII (foreign institutional investors) outflows from the equity markets have been less than that of debt markets. The rupee volatility in June and July was due to outflows from the debt market. If the market was left to itself, it would have stabilised by now.”
The Indian rupee has been stooping to new lows each day, depreciating over six per cent this month. The sliding rupee on Tuesday tumbled to a life-time low of 64.11 against the dollar.
Meanwhile, the yields on the government bonds had touched five-year highs, hardening to 9.22 per cent on Monday from Friday’s close of 8.88 per cent.
On Tuesday, yields on the benchmark 7.16 per cent bond touched 9.48 per cent before recovering to 8.90 per cent.
Also, the BSE-benchmark Sensex dipped to 17,900-levels by shedding 310 points (1.7 per cent) in early trade before it recovered to 18,246 points.
“Market investors and exporters are now not looking at any levels citing further fall in the rupee. The Government must address concerns of funding the current account deficit and bring in more capital inflows by improving sentiments,” said Hariprasad MP, Head – Treasury, CentrumDirect Ltd.
A treasury official on Monday said the market is ignoring the positives of reduction in gold imports and lower CAD last quarter, among others. Even FII inflows to the extent of $1 billion will help the rupee recover to around 60-levels, he said.