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Government watches as RBI fights the currency alone


Government watches as RBI fights the currency alone
The rupee hit a fresh low today touching 55.33 and was seen trading at 55.32 at 3.24 pm pm IST. The Reserve Bank of India has been selling dollars according to dealers, but its ability to stem the rupee slide seems limited.

Government apathy continues except the tired sounding statements from Pranab Mukherjee that “the falling rupee was a matter of grave concern.” Today's trading saw fresh demand from importers, particularly crude oil importers. Reports in the Business Standard reveal that Indian exporters have already sold nearly half their foreign currency in their accounts following the RBI's recent mandate on May 10.


Te RBI measure to sell dollars in exporter accounts have failed to stop the rupee from falling. Earlier, the RBI had announced a hike in FCNR deposit rates to bring in more dollars. In December it had freed interest rates on NRE deposits on hopes that there would be renewed supply of dollars. However, analysts believe these are likely to only provide temporary respite, as the falling rupee has more to do with poor economic fundamentals.

The inability to finance the current account deficit is playing havoc with the rupee, as portfolio flows are down to a trickle. In the past three months of the calendar year, robust portfolio inflows from FIIs helped support the rupee.

However, following some ambiguous tax policies for FIIS, net in flows turned negative in April and are likely to be negative in May as well. The government will now have to announce concrete measures as a dramatic fall in the rupee could lead to the oil import bill to swell. Fortunately for the government the falling rupee has coincided with a fall in crude prices.


Read more about: currency
Story first published: Tuesday, May 22, 2012, 13:26 [IST]
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