'RBI has capacity to sell up to $30 b to halt rupee fall'

The Reserve Bank of India (RBI) has a capacity to sell up to $30 billion from its forex reserves to halt the arrest of depreciating rupee -- which breached an all-time low of Rs 60-mark against the dollar -- and for this, it may come out with an NRI bond issue to raise around $20 billion, said foreign brokerage Bank of America Merill Lynch here on Monday.

"We expect RBI to mobilise $20 billion eventually through NRI bonds, a la 1998 Resurgent India Bonds and 2001 India Millennium Deposits, as the sell-off of emerging market debt should constrain the ability of FII debt limit hikes to raise forex reserves," it said and pointed out that the apex bank can sell up to $30 billion to support the rupee.

The BofAML report said that five-year money can be raised by issuing the 7 to 9 per cent coupon bonds to stabilise markets, as it was done in 1998 and 2001.

It may be noted that the domestic banks had raised $4.8 billion and $5.5 billion from the bonds targeted at the diaspora during the economic crisis years in 1998 and 2001, respectively.

BofAML said it expects RBI to defend the Rs 60 to a dollar level.
The rupee opened 40 paise down against the dollar this morning and was trading at Rs 59.74 to the dollar at 1437 hrs.

Every round of volatility in the rupee (the current one has been on for over three weeks now) causes a dent of up to $15 billion to the forex reserves, and considering where the reserves stand right now, RBI can sell up to $30 billion, the report said.

The selling will get the country's import cover down to six months from the current seven months, the BofAML said.

Its strategists expect the rupee to peak at Rs 59 to a dollar.

The RBI will start buying rupee once markets stabilise and the inflows from Unilver buy back, which would be in the region between $3 billion and $5 billion, happen, it said.