India said on Wednesday it was considering measures that would help stabilise the rupee after it hit an all-time low but the assurances are unlikely to be enough unless backed by concrete steps to revive inflows into the slowing economy.
The government may issue an overseas bond to raise capital for infrastructure, economic affairs secretary Arvind Mayaram said a day after another official said the government may target overseas Indians for a debt issue.
Mayaram, however, said the government had no plans to moderate gold imports which have been a key reason for a large current account deficit that is putting pressure on the rupee.
The rupee rebounded on Wednesday to trade at 58.00/01 per dollar from Tuesday's record low of 58.98 but trimmed gains after a higher-than-expected consumer price inflation reading for May.
On Tuesday as the currency hit the buffers the Reserve Bank of India intervened, the deputy chairman of the Planning Commission Montek Singh Ahluwalia said, confirming suspicions that the rupee rebounded from RBI dollar sales.
The RBI late on Tuesday also asked exporters at special economic zones to realise their dollar earnings and get them back into the country within one year in a bid to increase the supply of dollars in the market.
The central bank also hastened the process of dollar inflows through online payment channels by increasing the amount that exporters can bring back to $10,000 from $3000. "The government talking up the rupee has had an impact on the sentiment.
Going ahead, if the macros remain weak, the government will have to take steps to
further attract inflows," said Anjali Verma, economist at PhilipCapital in Mumbai.
The downward pressure on Indian assets has been exacerbated by the recent selloff across emerging markets and Indian officials have pointed to a broad rally in the dollar as the trigger for the latest falls.
The rupee has fallen more than 8 per cent since the beginning of May, and although that is the worst performance in Asia, other currencies are also being hit.
"We'll keep looking at different instruments, and bonds are one of the instruments we are looking at for raising resources for long-term infrastructure financing," said Mayaram on the sidelines of a conference in Mumbai on Wednesday.
Policymakers are also trying to comfort investors by focusing on measures to help narrow the current account deficit, including easing foreign direct investment rules.
Tackling India's current account deficit, which hit a record 6.7 per cent of gross domestic product in October-December, is seen as key to preventing continued weakness in the rupee.
"It will be a totality of our efforts to convey the impression that the current account deficit is being brought under control and the economy is going to rebound," Ahluwalia told CNBC-TV 18 in an interview.
For now, the rupee is likely to remain dependant on global movements of the dollar, ahead of key data this week including wholesale inflation and trade data and the Reserve Bank of India's policy review on Monday. "They (RBI) did intervene yesterday which would suggest that they felt market pressures were pushing the currency to an unnecessary low point," said Ahluwalia.
