Rupee drops again; RBI measures fail to provide succour

The rupee continued to drop in trade on Friday, despite steps taken by the Reserve Bank of India on Thursday to arrest the fall of the rupee. The rupee was trading at 53.53, down 9 paise over the previous days closing.

On Thursday the Reserve Bank of India (RBI) directed exporters to convert 50% of their foreign currency holdings with banks into rupees withing a fortnight. This was aimed at increasing the dollar inflows and stemming the downfall of the rupee. A few days earlier, the Reserve Bank of India raised the interest rate ceiling on nonresident Indian deposits in foreign currencies by up to 3%. In December, the RBI had freed interest rates on NRE deposits, in yet another measured aimed at preventing the slide of the rupee.

However, analysts believe that the measures are temporary and will not prevent the rupee from depreciating in the long run, due to weak fundamentals of the Indian economy. They particularly point out to the current account deficit, which is slated to come in at 4% for FY 2011-2012, which is a major reason for the falling rupee.

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