As the rupee hit a new low to the dollar each time, from the man on the street to the money market, professionals and policymakers, all seemed to have one question in mind: How far is the rupee from reaching its bottom? The government’s and the Reserve Bank of India’s (RBI’s) inability to control a free-falling domestic currency has led to the falling of the Indian rupee. That seemed to have come a few weeks early too.
Over the last few years, the Government and RBI had taken a raft of measures to boost the currency including easing FDI rules, making funds costlier for banks, and slapping foreign exchange controls on individuals and firms.
Investors would be keenly watching for forward-looking cues on RBI's stance. The most important problem that the RBI will have to address is of managing the current account deficit (CAD). It’s a far deeper structural problem of which the falling rupee is a symptom,” said a senior policy maker, who did not wish to be identified. In the latest set of moves, the Government has hiked import duty on gold to make us bear the cost of a creaking foreign exchange deficit and stabilize a weakening rupee.
India is set to float first-of-its-kind proxy sovereign bonds that will allow government-owned companies to dig deep into the pockets of foreign pension and institutional funds to stem the rupee’s slide, raise funds for building highways and also test international investors’ confidence. These, along with other actions such as easier overseas borrowing norms and more attractive returns on NRI deposits in Indian banks, are estimated to fetch the government an additional billion-dollar, crucial to strengthen the rupee that has fallen by more. The measures are part of a strategy to rein in India’s current account deficit (CAD) but these didn’t seem to have worked over the years. The RBI faces the classic monetary trilemma: stabilizing foreign exchange rates, boosting growth, and containing inflation.
Despite India improving on economy index ranking, Indian Rupee is still behind US Dollar. There needs to be clear picture on this to manage the inflation in country.
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