The Reserve Bank is likely to go in for more forceful regulatory changes and aggressive direct intervention to stabilise the declining value of rupee, says a research note by HSBC.
Last Friday, RBI announced amendments aimed at easing foreign currency flows but investors need to be on "high alert" for more forceful regulatory changes, global banking giant HSBC said.
"We need to be on high alert for more forceful regulatory changes, and more aggressive direct intervention activity, but it is going to be a difficult fight to reverse the negativity surrounding the currency," the research note said.
On May 4, RBI raised the interest rate ceiling on NRI deposits in foreign currencies by up to 3%, following which Indian banks will be able to offer higher interest rates on NRI deposits in foreign currency.
RBI also deregulated interest rates on export finance, a development that would help exporters to freely raise money in foreign currency without any limit on interest ceilings.
Saying that RBI's move could alleviate some short-term pressure on the currency, HSBC said clearer steps are needed to make the rupee look more attractive on a longer-term basis.
RBI's decisions are aimed at arresting the declining value of rupee which is hovering around Rs 53 level against the US dollar. Last week, it came very close to the 54 level, setting off alarm bells.
"The measures themselves are insufficient to stabilise USD-INR," HSBC said, adding that clear and credible policies are required to alleviate Balance of Payments and fiscal burdens.
The last time the country had a major Balance of Payment crisis was in 1991, which triggered economic reforms.
HSBC said one of the key focus areas would be whether the authorities would open a special dollar purchasing window for state oil companies -- one of the notable USD buyers in the Indian market.
Foreign fund flows as well as the rupee will be sensitive to General Anti Avoidance Rule (GAAR) developments, the research note said.
Meanwhile, implementation of GAAR provisions has been deferred by one year. It will be now applicable from 2013-14, Finance Minister Pranab Mukherjee informed Parliament today.
