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Economy Aug 7, 2013

Rupee at 61.4: What govt, RBI can do stabilise the currency

Mumbai: 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 rupees 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, to stand around 61.35 by 11 a.m.

Below are the possible steps that the RBI or the government could take to support the currency.

RBI ACTIONS

Reuters

Reuters

* FX intervention

* Tighten liquidity further by:

- Raising banks' statutory liquidity ratio of 23 percent

- 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

- Bond sales via open market operations

- Raising banks' cash reserve ratio, now at a record low4 percent

* Raise the policy repo rate, currently at 7.25 percent

* Provide a dollar-window for oil firms to pay for imports

* Buy oil bonds from companies by paying dollars

* Ask exporters to convert FX dollar holdings immediately

* Ask importers to delay or stagger dollar payments

* Curb speculation by cutting net open position limits

* Persuade banks and financial firms to raise funds abroad

GOVERNMENT MEASURES

* Raise foreign investment limits in debt

* Increase duties on non-essential imports, like electronics

* Attract money from Indian citizens abroad, or issue sovereign debt

* Announce additional fiscal, economic reforms

Reuters


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