RBI says it is closely watching rupee situation

The Reserve Bank of India (RBI) today said it was closely watching the rupee situation and will respond appropriately, even as the local currency recovered against dollar by 2% in the opening trade.

"The rupee has depreciated by about 17% against the US dollar since August 5, 2011...In the face of this, several measures were taken to attract inflows...The RBI is closely monitoring the developments in the external sector and it will respond to the evolving situation as appropriate," the central bank said in its mid-quarter policy review.

The rupee, which has emerged as the worst performing currency in the Asian region, has fallen close to 19% against the US dollar this year. It touched a historic low of 54.30 in yesterday's trade before closing at 53.64.

The RBI has decided to withdraw the facility of re-booking forex contracts by companies and foreign institutional investors (FIIs) and reduced across-the-board exposure limits of banks which are authorised to deal in the foreign currency.

The RBI has increased limits on investment in government and corporate debt instruments by foreign investors to cap rupee's fall against the American currency.

It has also raised the ceilings on interest rates payable on non-resident deposits and all-in-cost ceiling for external commercial borrowings.

Further, it has also initiated a series of administrative measures that discourage speculative behaviour.