Money & Banking

Finance Ministry to ‘wait & watch' on policy action; not to set level

| Updated on: May 17, 2012
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RUPEE'S FALL

The Finance Ministry wants to ‘wait and watch' before taking any policy action to hold the rupee at a level.

The rupee closed marginally higher at Rs 54.47 against the closing of Rs 54.49 on Wednesday, but has been plunging sharply against the greenback.

A Senior Finance Ministry official said, “At this moment, setting a level and acting around that will be a knee-jerk reaction. The situation is extremely volatile. So any knee-jerk reaction will have a very negative impact on the market.” The Government is keeping a close watch on the rupee, he added.

The Government listed the Euro Zone crisis, the rising crude oil price besides increasing foreign institutional investor (FII) outflow for the sharp fall in rupee. Since January 1, 2011, the Indian currency has depreciated 22 per cent against the dollar. Most significantly, the rupee has shed over 8 per cent since the beginning of March.

The Reserve Bank of India is believed to be intervening in the market. However, some experts feel that some kind of policy action from the Government is also required.

These actions include ways to increase FII inflow into equity and debt markets, quick enactment of banking and insurance amendment Bills and increasing fuel prices.

Interestingly, the Chairman of the Prime Minister's Economic Advisory Council, Dr C. Rangarajan had advocated use of the country's forex reserves to check the slide. However, sources in the Government do not think this would be easy. A source pointed out that the current reserves are just around $300 billion and dwindling.

Experts divided

Meanwhile, experts are divided over the impact of the sharp fall in the rupee's value. Mr Dhirendra Kumar, CEO, Value Research, said, “It is the only silver lining at this moment as this will give a more competitive edge to Indian industry in the international markets.” However, he feels that the RBI should take measures to curb excessive volatility in the forex market.

Mr Jagannadham Thunuguntla, Head of Research at SMC Global Securities, feels depreciating rupee could be disastrous for some Indian companies. One such aspect is the impact on Indian companies in terms of the mark-to-market losses on the borrowings they made through ECB and FCCB routes. These companies have raised about $30 billion (around Rs 1.50 lakh crore)in 2011. With dollar appreciation, the companies will have to bear an additional $6.6 billion (around Rs 35,640 crore) in repaying the ECBs, he added.

>Shishir.s@thehindu.co.in

Published on March 12, 2018

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