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The Government may settle for a Rs 53-54 level against the dollar. Accordingly, it has indicated the use of policy tools for lifting the rupee to this level.
On Tuesday, the rupee closed at 55.67 against Monday's closing of 55.18. The Indian currency touched an all-time low of 56.38 on May 24. It has depreciated nearly 10 per cent since March 1.
All-round crisis
A highly placed Government source told Business Line: “We need to live with that (Rs 53-54 level) for some time.” There is crisis all around and we cannot expect the rupee to go back to the 50-51 level. We also need to understand the investors' mentality, he added.
The Government feels that with the deteriorating Euro Zone crisis, rising unrest in Greece and Germany and change of power in France, investors are pulling out the world over and investing in US Government bonds, considered the safest at present. All this has weakened the rupee, but there is nothing wrong with the Indian economy's fundamentals, the source claimed.
The Reserve Bank of India (RBI) is doing its bit to help the rupee but these are ad hoc measures. “Ultimately, policy action from the Government will give support for longer periods. But this will largely depend on the political current and undercurrents,” another senior Government official added.
The key now lies with decisions such as foreign direct investment in multi-brand retail and allowing foreign airlines to pick up equity in domestic airlines. The official said efforts for a consensus are on and there is hope that something positive will emerge soon. However, administrative bottlenecks in implementation of policy tools available are also an issue.
Petrol subsidy
He said that another policy issue to support the rupee is a strong signal for cutting subsidy on petroleum products. In this regard, an Empowered Group of Ministers (EGoM) is expected to meet on June 1 to discuss diesel and LPG price.
Meanwhile, the good news is that foreign institutional investment net inflow (as on May 28, 2012) has reached $11.89 billion, 43 per cent higher than $8.29 billion in entire 2011.
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