RBI Walks The Tightrope

Dip, Snap, Crackle.......The Rupee dwindles to touch an all time low of 45.45 and continues to swing after the three day consecutive fall through the first three days of this week. The dearth of Dollar inflow and the unabated demand for the currency continues to pressurize the Rupee. The statement by the RBI governor after his meeting with the Finance Minster that he was not worried about the decline in the Rupee and that no immediate policy measures are intended to defend the currency have led the market to assume that they are comfortable with the current levels. The explanation to the situation was that the decline was actually a correction for an appreciation in the real exchange rates terms.

The Rupee’s one way movement has prompted unanimous dollar buying against the currency and has caused the rupee to dip suddenly after having stayed in the broad range of 43.40-43.70 for almost a year. The problem has been further aggravated after the repatriation of funds by foreign institutional investors after booking profits in the equity markets in the country.

The reserve bank has now stated that it will monitor market developments closely and take measures to stabilize expectations to the extent feasible. The central bank would also intervene in the markets directly or indirectly to reduce the effects of leads and lags and meet temporary Demand-supply mismatches.

The RBI’s much hyped measures in terms of "concrete rupee-supportive measures" are expected to help the Rupee firm up. The RBI has till now only issued a clarification on its Forex Management Policy while the State Banks intervened and sold Dollars helping the Rupee to recover. Bankers and dealers say that the rupee will continue to depreciate until the central bank asks exporters to bring in their remittances or curbs imports to an extent. 


Deepak Kuriakose
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