The BSE Sensex rose more than 400 points and the Nifty gained over 140 points on Thursday after new Reserve Bank of India (RBI) chief Raghuram Rajan's comments on potential measures on Wednesday sparked hopes of more reforms aiding the economy and the currency.
The Nifty rose as much as 3.3 per cent, propelled by lenders such as HDFC Bank, which surged after new steps outlined by Rajan that included increasing overseas borrowing limits for banks. But the index was still down more than 10 per cent from its May highs. The BSE Sensex was trading up more than 400 points and the Nifty rose over 130 points at 1.13 IST.
The Indian rupee rose as much as 2.3 per cent to 65.53 per dollar, well off the record low 68.85 hit on August 28, when it was down more than 23 per cent from its 2013 peak. The currency was trading at 66.05 per dollar at 1.10 pm.
However, amid the euphoria over RBI Governor Raghuram Rajan's strong Wednesday debut, economists warned he cannot by himself solve the challenges in an economy facing a sharp growth slowdown and a record high current account deficit, which have fueled a 16 per cent slide in the rupee so far this year.
The government has failed to push through politically tough reforms needed to fix the economy, and elections due by next May instead raise the prospect of expensive populist spending that could threaten the country's sovereign credit rating, which is one notch above junk status.
"To a certain extent, the recent rupee tumble and instability in the financial markets, has been a crisis of confidence. To that end, the path of action provided by the new governor and the stress on keeping communications predictable and consistent will be a welcome move," Radhika Rao, an economist at DBS in Singapore, said in an email to clients.