Govt, RBI weigh steps to boost capital inflows

Rupee sinks to new closing low of 61.30 a dollar

On a day when two high-powered committees met at the Reserve Bank of India (RBI) headquarters in Mumbai, the rupee fell to a new low against the dollar, as dealers waited for a word from policymakers on steps to boost inflows and prop up the battered currency.

The rupee on Wednesday fell 49 paise from its previous close of 60.81 to an all-time closing low of 61.30 a dollar, after touching an intra-day low of 61.45. By the end of the day, the currency had slipped under the previous closing low of 61.10 a dollar hit on August 2.

The first meeting was of the sub-committee of Financial Stability and Development Council (FSDC), chaired by RBI Governor D Subbarao. The meeting was attended by Raghuram Rajan, who is to succeed him, and other top finance ministry officials. While everyone was tightlipped about the proceedings, a late-evening RBI statement said the participants discussed the “potential risk to stability of the domestic financial system”. The sub-panel also expressed concern on the deteriorating asset quality of public-sector banks and discussed corrective measures for this.

The second meeting was of the high-level committee on external commercial borrowings (ECBs). It is learnt measures to relax ECB norms to allow leveraged firms to tap foreign markets for funds, and repayment of rupee loans from ECB proceeds were discussed.

“There is genuine dollar demand from oil importers and other importers. There is a need for capital flows to address this,” said Mecklai Financial Deputy CEO Partha Bhattacharya. He is of the view that despite the intermittent interventions by RBI, there will be weakening bias for the rupee.

On Tuesday, the rupee had touched an all-time intra-day low of 61.81 a dollar but recovered to close at 60.81 after RBI intervened by selling dollars through state-run banks.

The high level of current account deficit, which widened to a record high of 4.8 per cent of Gross Domestic Product last financial year, is seen as one of the reasons for the currency’s weakness.

Since the start of this financial year, the currency has weakened 13 per cent and currency dealers see it depreciating further against the dollar if no concrete measures are taken to arrest the fall.

“The actions of RBI taken on July 15 and July 22 show that their intent in clear. I do not think they will allow runaway depreciation. They will be there to check volatility. Besides the interventions, they can also take other steps in the short term. RBI and the ministry are aligned and they want to control volatility. But, in the medium, term the market has to see progress on CAD and growth,” said G Ananth Narayan, head of global markets (South Asia), Standard Chartered Bank.

The median forecast poll from 10 currency experts done by Business Standardon Tuesday shows that the rupee is expected to trade at Rs 62.45 per dollar by end of this month.