The ball is now firmly in the Government’s court to rescue the rupee, which on Friday briefly slipped below the 62 to the dollar mark, say market players.
Though the central bank on Wednesday announced measures to shore up the rupee, the domestic unit was overwhelmed by foreign institutional investors selling in the domestic equity markets.
FIIs are unwinding their equity investments on expectations that the US Fed will gradually start withdrawing the $85-billion a month bond-buying programme by September-October. Easy liquidity has flooded emerging markets due to the bond-buying.
The 30-stock BSE Sensex tanked 769 points ( down 3.97 per cent from the previous close) with all stocks except Hero MotoCorp losing ground.
RBI steps not enough
The RBI’s measures, announced on Wednesday, to restrict the amount of money that companies and individuals can send overseas, allowing banks in India to pay more interest on the deposits of overseas Indians, and banning import of gold in the form of coins and medallions did little to reverse the declining fortunes of the rupee.
“The Government has to now act. The RBI has done what it can do. A steep increase in the import duties on non-essential goods will discourage imports, thereby helping conserve precious foreign exchange,” said a forex dealer with a public sector bank.
Moody’s Investors Service said the measures by the Reserve Bank of India to support the currency have not reversed the depreciation, implying that interest rates may remain elevated for a longer time.
Naina Lal Kidwai, President, FICCI, said “With the rupee touching a new low of 62 to a dollar and the largest fall in two years in the equity market, a sense of despondency continues.
“We cannot ignore global influences with a strengthening US economy and dollar and possibility of QE tapering leading to many emerging market currencies weakening as also the rupee.”
Kidwai said the markets experienced a free-fall and did not react well to the central bank’s restrictions, with heightened fears that more restrictions may follow, including for FIIs. These fears need to be addressed.
The rupee, which closed at an all-time low of 61.66 per dollar against the previous close 61.44, has depreciated almost 14 per cent (or Rs 7.40 to the dollar) since the beginning of this financial year.