The Centre has swing into action with the fast declining rupee by seeking aggressive intervention of the the Reserve Bank of India (RBI) to bolster efforts. The Centre is worry as the rupee witnessed its worst position against the dollar in history.
The Centre was also make moves for NRI deposits by encouraging overseas Indians to invest in the country in a measure aimed to stabilise the falling rupee. The rupee has been one of the worst-performing currencies in the emerging markets on persistent global headwinds and concerns on the macroeconomic front.
Concerns over the widening trade deficit on the back of rising oil prices and the strengthening of the dollar have been consistently putting pressure on the rupee. The current account deficit (CAD) touched a five-year high of $15.8 billion during the first quarter, the RBI reported last week.
Governmetn sources indicated that the government is worried about the falling rupee and will announce specific measures to arrest the rupee fall. In 2013, the RBI had mobilised $26 billion through Foreign Currency Non-Resident Bank Account (FCNR-B) deposits that helped strengthen the rupee and stabilise the currency market.
As the rupee continues to fall, the government could tap NRIs, among other measures to plug the current account gap, the official said. The foreign exchange reserves were, however, at a comfortable level, the government said. The RBI has been selling dollars, though in a restrained manner, leading to a drop in India’s foreign exchange reserves to $400 billion from a record high of $426 billion in mid-April.
Meanwhile, former RBI Governor Raghuram Rajan hoped that the rupee will not go in for a free fall as the central bank is appropriately raising interest rate to control inflation. The rupee crashed below the 72-mark to end at a life-low of 72.45 against the US dollar on growing fears of contagion from an emerging-market rout and escalation of a global trade war.
Heavy speculative dollar demand along with panic among importers sent the domestic currency tumbling by a sharp 94 paise to hit a historic low of 72.67 in mid-morning trade, triggering the central bank intervention to defend the currency.