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Steps RBI, Govt Can Take To Stabilise Rupee

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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