The rupee journeyed southwards after Finance Minister, P. Chidambaram, told Parliament that he will keep the current account deficit at 3.7 per cent of the gross domestic product in the current fiscal but did not outline specific measures.
The Indian unit, which had opened higher at 60.50 in anticipation of key government measures, closed at 61.29 against the dollar.
The Finance Minister’s statement lacked the finer details of how he would keep the current account deficit (CAD) at $70 billion (3.7 per cent of GDP) at a time when imports are increasing and dollars are finding their way into the US markets.
India’s trade deficit, the difference between imports and exports, for July at $12.27 billion stayed almost the same as it had in June.
“Rupee erased its (early) gains and started depreciating after the Finance Minister vowed to contain the CAD but failed to give the crucial details of the same,” said Abhishek Goenka (Founder and CEO, India Forex Advisors).
Dealers and traders will believe only concrete action of the government, said a top official of a public sector bank, who did not wish to be named.
The Reserve Bank’s liquidity squeezing measures also has not had much impact on shoring up the currency, the official added.
“Going ahead, the Government and the RBI will have to take some quick and stringent steps to defend the rupee otherwise it will be tough for the currency to stabilise against the US Dollar,” Goenka said.
Intraday, the rupee swung between a high of 60.50 and a low of 61.31.
Call rates up; bond yields harden
The interbank call money rates, the rates at which banks borrow from each other to meet their short term requirements, closed higher at 10.25 per cent from its previous close of 10.10 per cent
The benchmark 7.16 per cent government security, which matures in 2023, closed sharply lower at Rs 92.47 from the previous close of Rs 93.56. Yields on the security hardened to 8.29 per cent from the previous close of 8.12 per cent.