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Befuddling all efforts of the Reserve Bank of India (RBI) and the government to arrest the rupee’s freefall against the dollar, it touched fresh all-time low on Tuesday.
In early trade, the rupee dropped to 64.11 against the dollar, even as Finance Minister P Chidambaram huddled down with top government officials, including key economic advisor C Rangarajan for a solution to the growing crisis.
Chidambaram is understood to have discussed the current economic situation in addition to the country's strategy for the upcoming G20 Leaders' Summit at St Petersburg next month. The outcome of any discussions on further reforms to effectively stem the rupee depreciation was not immediately known.
Among others, the meeting was also attended by Planning Commission Deputy Chairman Montek Singh Ahluwalia, Economic Affairs Secretary Arvind Mayaram and Commerce Secretary S R Rao.
Even as ratings agency Standard & Poor’s downgraded the economy and the Sensex slipped below 18,000 points on Tuesday, RBI intervened through dollar sales in the foreign exchange market to stem further rupee slides.
State-run banks sold dollars soon after the rupee breached the 64 mark, which helped it to pull back at 10.40 am when it was traded at 63.72 to the dollar. “The rupee is weakening due to month-end dollar demand from importers. And this demand is expected to continue due to which rupee will weaken further,” said a forex dealer.
There was a very clear downward drift in the money markets even as the dollar-rupee closed the day at 63.25 levels while making the intraday high of 64.13. Dealers maintain that some exporters felt Rs 64 to a dollar was a good rate and sold off a bit, while corporates who have dollar earnings could have also sold off, so it is safe for markets to presume that sale of dollar was on behalf of the apex bank.
Finance Ministry sources said the rupee will have to find its “sensible level”, without indicating what that level could be.To restrict the outflow of foreign currency, the RBI had on August 14 announced stern measures, including curbs on Indian firms investing abroad and on outward remittances by resident Indians Mint Street observers noted that RBI has been cautious in selling dollars as the forex reserves (at about $280 billion) could only cover six-and-a-half months of exports. Bankers also said the rupee has not yet reached its fair value and further pressure will be there on the currency.
Chidambaram had earlier said the current account deficit (CAD) would be brought down to $70 billion this fiscal from $88.2 billion in the previous year and steps would be taken to increase foreign fund inflows.
In a bid to revive overseas interest in government securities, a SEBI auction for investment limits in such bonds was oversubscribed on Tuesday by FIIs to the tune of $9.34 billion (Rs 58,264 crore). SEBI received bids worth a record $10.4 billion (Rs 64,908 crore).
Top SEBI officials hoped that this would negate prevailing market concerns on foreign investments.Rs 8000-cr bond buyback The Reserve Bank will conduct open market purchase of government bonds of Rs 8,000 crore on August 23 to inject liquidity, the central bank said in a statement.
More Open Market Operations would be undertaken as and when required, it added.