The rupee's fall to record lows has raised chances that the Reserve Bank of India will take more steps to support the currency, as a strategy built on tightening rupee money markets and raising short-term interest rates has had limited effect. The worst performing Asian currency of the year so far hit a new life low of 61.80 per dollar on Tuesday, breezing past a previous low of 61.21 hit on July 8. Central bank intervention helped the rupee recover, but by Wednesday it was sliding once again.
Here's what the RBI or the government can do to support the rupee
The RBI can intervene in the forex markets by tightening liquidity further by raising banks' statutory liquidity ratio of 23 per cent, further reducing how much banks can borrow from the RBI under the daily repo auction, reducing the amount of funds RBI provides to banks under the export refinance scheme at the repo rate.
The central bank can also conduct bond sales via open market operations and raise banks' cash reserve ratio, now at a record low 4 per cent, to tighten liquidity.
The RBI can raise the policy repo rate, currently at 7.25 per cent.
The central bank can provide a dollar-window for oil firms to pay for imports and buy oil bonds from companies by paying dollars. This will reduce the scramble for dollars in open markets.
It can ask exporters to convert forex dollar holdings immediately and ask importers to delay or stagger dollar payments.
The RBI can curb speculation by cutting net open position limits. It can also persuade banks and financial firms to raise funds abroad.
The government can raise foreign investment limits in debt.
It can also increase duties on non-essential imports, like electronics.
The government can issue sovereign debt or an NRI bond to attract money from Indian citizens abroad.
It can announce additional fiscal and economic reforms to defend the rupee.
(With inputs from Reuters)
