Rupee is trading near 69 and today after RBI intervention came down till 67 today.
Below are measures the RBI and govt could consider to protect the rupee:
- Dollar-window for oil companies: The RBI could open a dollar window for oil companies to buy dollars directly from the central bank instead of buying from markets, but it would drain foreign exchange reserves. — This RBI implemented yesterday.
- Dollars for oil bonds: The RBI could hold auctions to buy bonds from oil companies, providing them dollars or other non-rupee currencies, but the outstanding amount of oil bonds is small as the government has been giving direct cash subsidy to oil companies
- Asking exporters to buy rupee: The central bank could ask exporters to convert part, or their entire, overseas foreign currency earnings in the market immediately, providing near-term relief to the rupee.
- Curbing net open position limits for banks: The central bank could ask banks to limit their net overnight open position limits, making it difficult to short the rupee and prevent speculative trading.
- Moral persuasion: The RBI could persuade banks and financial institutions to raise funds in dollars abroad and lend them locally, a measure that has worked in the past when overseas rates were attractive.
- Stagger import payments: The central bank could issue rules delaying or staggering import payments, which are typically made at the end of every month, although the RBI has not taken this step in recent years.
- Additional fiscal reforms: The government could review sectors such as defence, or revive pension and insurance reforms, but passage through parliament could be tough.
- Government backed non-resident Indian bond: The government could issue a sovereign bond through State Bank of India to non-resident Indians, but such a move could increase external debt and interest liability.
- Sovereign overseas bond: The government could issue sovereign bonds to raise dollars from overseas investors, but the RBI is reluctant to expose the country to foreign exchange risks during repayment.
Complied from Internet
What is the use of reserves when the RBI doesn’t intervene to control the free fall of the rupee. During a meeting with the RBI Dy. Governor in an industry forum, when this question was raised he had said that export organisations want the rupeed to be low so that it promotes competitiveness. When we told him that all our electronics is imported and in a few years that will be higher than the oil import bill, he said he will examine. No substantial measures were taken to either support the rupee or to allay the fears of people or curb speculators who are now playing on the rupee.
Nice article. Its better to encourage Foriegn investors to invest in power projects, New Diamond mines. I mean we need reforms, mining laws… etc.
Currently we importing 90% our electronics goods from abroad. We need FAB (Electronics SEZ) cities.