FM unveils fresh measures to lift rupee

Posted By: Religare
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FM unveils fresh measures to lift rupee
The Finance Minister P Chidambaram on Monday unveiled fresh measures to lift the troubled rupee and vowed to contain the Current Account Deficit (CAD) which is the biggest force behind falling domestic currency.

FM said measures will help contain the CAD at USD 70 billion or an estimated 3.7 percent of gross domestic product (GDP) for the current fiscal as against USD 88.2 billion or 4.8 per cent of GDP in the previous fiscal.

"Since the world economy is challenged, India's economy also faces challenges. One of the main challenges is the Current Account Deficit (CAD). Their (investors') concerns are reflected in the pressure on the exchange rate. The RBI has taken a number of measures to increase the interest rate at the short end and this has contained the depreciation of the rupee to some extent. However, we believe that we have to do more to contain the CAD, to reduce volatility in the currency market and to stabilise the rupee," FM said in a statement.

The measures announced by FM to reduce the CAD included-- Compression in import of gold and silver, Compression in demand for oil, Compression in certain imports (non-essential nature), Public sector Financial Institutions to raise quasi-sovereign bonds to finance long term infrastructure, Liberalising ECB guidelines, PSU oil companies to raise additional funds through ECBs and trade finance, and Liberalising NRE/FCNR deposit schemes.

"As a result of these measures we expect that the CAD will be contained at USD 70.0 billion while the inflows will increase to a level that will be sufficient to finance the CAD," he added.

However, the announcement failed to stem rupee's slide on Monday, which fell 1 per cent, as traders felt the lack of concrete details of FM's measures.

Dion Global Solutions Ltd.

Read more about: forex market, cad, rbi, gdp
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