Nine steps India can take to prevent rupee slide

Jul 09 2013, 13:39 IST
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SummaryFall in rupee to record lows has raised prospect of RBI taking steps to support the currency.

Fall in rupee to record lows has raised the prospect of government or RBI taking steps to support the currency, seen vulnerable because of a record high current account deficit. Below are some measures the Reserve Bank of India and government could consider to protect the rupee

* Dollar window for oil cos

RBI could open a dollar window for oil companies to buy dollars directly from it instead of markets, but it would drain foreign exchange reserves

* Dollar for oil bonds

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 Indian rupee

RBI 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 limit for banks

It could ask banks to limit their net overnight open position limits, making it difficult to short the rupee and prevent speculative trading

* Moral persuasion

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

It could issue rules delaying or staggering import payments, which are typically made at the end of every month, although 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

* Govt-backed NRI 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 w * Sovereign overseas bonds

The government could issue sovereign bonds to raise dollars from overseas investors, but RBI is reluctant to expose the country to foreign exchange risks during repayment

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