NEW DELHI: As the descent of rupee to new lows continues, what are the options the country’s central bank and the government have to check fall in the local currency against the US dollar?
Experts suggest a slew of measures including easing of norms for external commercial borrowings, raising non-resident bonds, restricting gold imports and even reducing the limit for personal remittances. While some says the Reserve Bank of India (RBI) has enough room to sell dollar from the forex reserve to support the currency.
The Indian currency has been continuously falling against the dollar, with RBI taking several measures to defend it including selling of dollars. As per experts, India has enough forex reserves to deal with plummeting currency. The country’s forex reserves came down to $545.65 billion on September 23, 2022, from $642 billion in June, 2022, as per the RBI data.
“RBI has enough room to sell dollar reserves to control the falling rupee. It can sell up to nearly 95 billion dollars. But for the long run, the trade deficit will have to be controlled,” said Ravi Singh, vice-president and head of research, Share India.
“In addition, the rupee can be converted into international currency to control falling currency. However, it will take time. If the government maintains low inflation and stable growth then foreign investors can be attracted,” he further added.
Meanwhile, Nomura in its report said the potential measures by India to contain the depreciating rupee could be further easing norms around external commercial borrowings and new bilateral swap agreements. Additionally, it can boost the currency by raising non-resident Indian (NRI) bonds, increasing cash reserve ratio (CRR), restriction on gold imports and decrease in personal remittance among others.
The central bank can also consider reinitiating foreign currency non-resident scheme (FCNR) swap scheme as done in 2013, said the Japanese bank. However, as per Yes Bank, it could be challenging to raise dollars via FCNR bonds this time as the interest differential has dipped to unattractive levels.