Chairman of PM’s Economic Advisory Council feels short-term measures are needed to take corrective action to arrest the fall in rupee, RBI Governor designate Raghuram Rajan says govt will take some more measures to stabilise the currency soon
New Delhi : Speculative activities in the forex market should be curbed and short-term measures are needed to take corrective action to arrest the fall in the rupee, which hit an all-time low on Tuesday, Prime Minister’s Economic Advisory Council (PMEAC) Chairman C Rangarajan said.
Despite a string of liquidity tightening measures taken by RBI to curb speculation in the forex market, the rupee plunged to all-time intra-day low of 61.80 against the dollar but erased all losses to end with a gain of 11 paise at 60.77 after the central bank is believed to have intervened heavily in the forex market.
“In the short term, there should be measures to take corrective actions. Also, there should be actions to prevent speculative activities and watch the behaviour of the rupee,” Rangarajan said. The rupee earlier touched an intra-day low of 61.21 on July 8. Rangarajan said the decline in the value of the rupee is a reflection of capital flows and strong demand for the dollar.
Raghuram Rajan, Chief Economic Advisor in the Ministry of Finance, who was appointed as the next RBI Governor, said: “The government will take some more measures to stabilise the rupee soon.”
“Overnight movements in the US affected the rupee in a big way as fears resurfaced that the Fed may soon start tapering its bond-buying programme. The over-reliance on US events is hitting domestic markets,” said Dhanlaxmi Bank Executive Vice-President (Treasury) Srinivasa Raghavan.
On Monday, data showed an acceleration in the pace of growth in US services sector in July, indicating that a rebound in world’s largest economy is continuing and may lead the Fed to taper its USD 85-billion-a-month bond buys soon.
Late dollar selling by exporters on hopes of intervention by the Reserve Bank of India (RBI) amid a weakening dollar overseas helped the rupee to rally, a forex dealer said.
“Towards the end, RBI intervened in the market via state–run banks to support the currency,” said Pramit Brahmbhatt, CEO of Alpari Financial Services (India). “Negative sentiment will push down the rupee further to trade near 62 levels in coming days.”
Stocks face the heat
The free-falling Indian unit, which has been on downward spiral due to changing macro-economic fundamentals and a host of other factors, spooked investors, who resorted to heavy selling, sending the market in a tailspin and leading it to touch four-month low. The benchmark BSE S&P Sensex plunging over 449 points or 2.34 per cent. FIIs injected Rs 33.35 crore on Monday and picked up shares worth Rs 212.74 crore on Tuesday.
The government informed the Parliament it has taken a slew of steps to check forex volatility and is watching the situation. “(The government) has taken a slew of initiatives to boost exports and reduce imports, encourage capital flows to facilitate financing of CAD and stem the volatility in the exchange rate of the rupee,” Finance Minister P Chidambaram informed the Rajya Sabha.
Investors have a lot to fear in the current market environment. They believe macroeconomic conditions may worsen in the coming days on the back of rupee factor and concerns about US Fed withdrawing liquidity support, traders said.
Among the major Nifty losers, Tata Power stock tumbled 15 per cent after reporting a loss in April-June quarter. Other draggers included Asian Paints, Indusind Bank, BHEL, JP Associates, BPCL, UltraTech, HDFC, Tata Steel and DLF. Ambuja Cement, Tata Motors, Power Grid and TCS were the key smart movers in a falling market.