Reserve Bank of India (RBI) Governor, D Subbarao, on Thursday indicated more interventions to arrest the slide of the rupee against the dollar and said some structural changes were needed for improvement in the current account.
“RBI is constantly monitoring the situation and would do whatever necessary, consistent with our policy,” Subbarao said after the apex bank’s board meeting at the Lal Bahadur Shastri National Academy of Administration here.
“The rupee has been falling for the last three-four months, especially after some appreciation in January-February. The RBI has taken action to improve current flows and curb speculation. The rupee movement is a function of external factors, the capital account and other factors like balance of payments. Some structural changes are necessary for improvement in the current account,” Subbarao said. The rupee has depreciated 10 per cent since its peak level in 2012, attained on February 3.
However, the rupee on Thursday snapped its losing streak for the first time in this week. It closed at 55.66 a dollar, 0.6 per cent higher than the previous close. However, the currency also fell to all-time low of 56.39 against the greenback during the day.
The strengthening of the rupee came on the back of dollar inflows from exporters and the central bank’s interve ntion that pulled the currency from the all-time intra-day low. Dealers said RBI intervened continuously through the day. According to dealers, banks may have sold $500 million to $600 million on behalf of the central bank on Thursday. Also, it was the last day for holders of Exchange Earners’ Foreign Currency (EEFC) accounts to comply with RBI’s norm of converting half of dollar balances into rupees. An RBI circular warning exporters and banks of penal action if they failed to meet the EEFC norms also increased dollar flows.
On being asked whether RBI would consider selling dollars directly to oil marketing companies, Subbarao said the bank might consider it in an attempt to arrest a further fall in the rupee, which had hit record lows for seven consecutive sessions.
“That’s been an issue on the table. I am not ruling it out, i am also not saying that we will do it right now. It’s an open issue, we have done it in the past. At the moment, we have not done it so far,” he said.
The issuance of a sovereign bond, another possible measure to bolster the rupee, was not under discussion, Subbarao said. “I cannot say in favour or out of favour. We have done it in the past and it might be done in the future. But it is not something being contemplated right now,” Subbarao said.
Some in the market have suggested that, to attract dollars, India could issue a sovereign-guaranteed bond through State Bank of India to non-resident Indians at attractive interest rates, similar to the Indian Millennium Deposits issued in 2000. Such a move would increase India’s debt and interest liability.
On being asked on the WPI data, he said after the RBI’s policy review in mid-April, it was noticed that the inflation was upside in the month of April. “We also noted that increase had been at the cost of food inflation, so in our next mid-quarter review, which is due in June, we will review the numbers that have come after the mid-April statement and we will consider the current inflation scenario and take a decision accordingly.”