MUMBAI: The slew of government measures to rescue the rupee fall failed to do the trick, as the domestic currency continued to weaken. On Monday, rupee halted its two-day gains to open higher at 72.6, a few notches away from its all-time high of 72.9.
It dropped nearly one per cent to close at 72.51 against the US dollar. Clearly, last week’s five-pronged strategy to stem the rupee rout needs more than piecemeal efforts, brokerages believe.
“PM’s review meeting over the weekend on the economy did not bring out any immediate trigger for the stock prices to catapult higher. Stocks and forex had high hopes on the outcome and both gave up their recent gains. Rupee also gaped down and could not recover throughout the day,” said VK Sharma, Head, Private Client Group & Capital Market Strategy, HDFC Securities.
Till date, rupee has fallen more than 13 per cent and is the worst-performing Asian currency. Currency-watchers expect more intervention from the RBI to tackle the erosion, if not by selling dollars, at least by tweaking rules for foreign flows into the debt market or by easing External Commercial Borrowing norms.
The central bank also has the option of raising policy rates next month, as higher interest rates can encourage foreign flows and, in turn, contain rupee volatility. Brokerage Edelweiss is pencilling in a possible RBI rate action next month, citing increasing imported inflation pressures and fluctuation in crude prices.
Meanwhile, though the government announced measures to curb non-essential imports to prevent the current account deficit (CAD) from widening, it stopped short of specifics. For the quarter ended June 2018, CAD stood at 2.4 per cent of GDP.
Economists project that it could breach the 3 per cent mark, should global crude prices harden to over $80 per barrel. The ongoing currency weakness could moderate imports in the second half of the current financial year.