Steps RBI, Govt Can Take To Stabilise Rupee

Photo Credit :

08 November, 2014

The rupee's fall to record lows has raised chances that the Reserve Bank of India will take more steps to support the currency, as a strategy built on tightening rupee money markets and raising short-term interest rates has had limited effect.

The worst performing Asian currency of the year so far hit a new life low of Rs 61.80 per dollar on Tuesday, breezing past a previous low of 61.21 hit on 8 July. Central bank intervention helped the rupee recover, but by Wednesday, 7 August, it was sliding once again, to stand around 61.35 by 11 a.m.

Below are the possible steps that the RBI or the government could take to support the currency.

RBI Actions

FX intervention
Tighten liquidity further by:

- Raising banks' statutory liquidity ratio of 23 per cent
- Further reducing how much banks can borrow from the RBI under the daily repo auction
- Reducing the amount of funds RBI provides to banks under the export refinance scheme at the repo rate
- Bond sales via open market operations
- Raising banks' cash reserve ratio, now at a record low 4 per cent

Raise the policy repo rate, currently at 7.25 per cent
Provide a dollar-window for oil firms to pay for imports
Buy oil bonds from companies by paying dollars
Ask exporters to convert FX dollar holdings immediately
Ask importers to delay or stagger dollar payments
Curb speculation by cutting net open position limits
Persuade banks and financial firms to raise funds abroad

Government Measures

Raise foreign investment limits in debt
Increase duties on non-essential imports, like electronics
Attract money from Indian citizens abroad, or issue sovereign debt
Announce additional fiscal, economic reforms

(Reuters)