RBI pledges push to halt rupee slide
Mumbai, May 19, 2012
India's central bank promised yesterday to use "all its available tools" to stabilise the rupee, which sank to a record low against the dollar for a third straight day amid turmoil in global markets.
The Indian unit fell to 54.91 against the dollar, below its previous low of 54.58 a day earlier, before clawing back to 54.4 in late afternoon trade.
Asian shares and currencies fell after Moody's downgraded 16 Spanish banks on Thursday.
The Reserve Bank of India (RBI) "will use all its available tools to fulfil its objective of curbing volatility in the foreign-exchange market", the bank's deputy governor Subir Gokarn said.
"The central bank will not hesitate to take more steps to stem the falls in rupee, if needed," he said.
But analysts and traders expect the rupee to fall further in coming days with risk aversion hitting global markets and sentiment souring over India due to its gaping trade and current account deficits and slowing economy. "The rupee is in a freefall. Unless the RBI and the government take major steps to boost sentiment, there are more worries ahead," said Abhishek Goenka, chief executive of India Forex, a consultancy firm.
India's central bank is suspected to have intervened on Thursday to help prop up the rupee in one of more than a dozen recent occasions it has sold dollars to help slow the decline of the currency.
Last week, it announced new measures to support the local unit, ordering exporters and other foreign-exchange earners to convert half of their total foreign-exchange earnings kept in banks into rupees.
Finance Minister Pranab Mukherjee this week blamed the deteriorating international climate for the falls as international investors sell risky emerging market assets and retreat to safe havens. Other emerging currencies from Indonesia to Brazil have also been hit.
Foreign investors have been turned off the country of 1.2 billion people due to recent regulatory moves by the government, which has stalled on a pro-growth reform agenda aimed at opening up the economy.
Overseas funds withdrew a net $133.44 million worth of Indian equities in the new financial year, which started in April, pulling down local share prices seven per cent in the same period.
The falling rupee is bad news for India's economy, pushing up import prices and aggravating inflation that is running at over 7 per cent, limiting the central bank's scope to roll back interest rates and spur the economy.-Reuters