The Reserve Bank of India (RBI) could sell at least an additional $25 billion from its reserves to support the rupee, according to the State Bank of India’s Ecowrap research report.

This observation comes in the backdrop of the rupee weakening by 48 paise on Tuesday, a whisker away from 73 to the dollar.

The Indian unit closed at yet another life-time low of 72.9775 against the dollar on Tuesday despite measures announced by the government last weekend to curb the widening current account deficit and support the rupee.

Last weekend, the government had announced measures, including permitting manufacturing entities to raise $50 million for up to one year, exempting interest payments made by an Indian company or a business trust to a non-resident in respect of offshore rupee-denominated bonds issued between September 17, 2018 and March 31, 2019, from withholding tax, and allowing foreign portfolio investors to invest more in corporate bonds.

Among the next steps or continued steps to thwart the turbulence in foreign exchange market even as the RBI is focussed on managing exchange rate volatility, the SBI report said: “RBI could sell at least an additional $25 billion from its reserves to support the rupee, based on our historical analysis of the RBI intervention patterns since 1990s.

Immediate measure

“Coupled with this, the RBI should monitor the NDF (non-deliverable forward) market more closely...oil companies must be asked to purchase all their dollar requirements directly from the RBI through a single bank as in 2013.”

“As an immediate measure, the RBI can aggressively intervene and supply the dollars in the market (both spot and forward) as it has huge forex reserves,” said Soumya Kanti Ghosh Group Chief Economic Adviser, SBI.

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