Rupee crashes to near 1-yr low: How policymakers can play saviour

The Indian rupeetoday closed at 57.06 adollarin the local markets today for the first time since June 27, last year,raising the prospect of authorities taking steps to cushion its decline.

The rupee is headed towards another all-time low this month as demand for the greenback continues. The rupee breached the Rs 57 mark per dollar in afternoon trades on Friday due to demand for the greenback from oil importers, said currency traders.

Below are some measures the Reserve Bank of India and government could consider to protect the rupee.

RAISING FOREIGN INVESTMENT LIMITS ON DEBT

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India could further raise the combined $76.5 billion investment limits on government and corporate debt after last hiking them in March, but any increase would likely be small. Finance Ministry sources say the $25 billion cap on foreign investment in government debt could be raised by $5 billion soon.

ASKING EXPORTERS TO BUY RUPEES

The central bank could ask exporters to convert part of or their entire overseas foreign currency earnings in the market immediately, providing near-term relief to the rupee.

MORAL PERSUASION

The RBI could persuade banks and financial institutions to raise funds in dollars abroad and lend them locally, a measure that has worked in the past when overseas rates were attractive.

RAISING FOREIGN INVESTMENT LIMITS ON DEBT

India could further raise the combined $76.5 billion investment limits on government and corporate debt after last hiking them in March, but any increase would likely be small. Finance Ministry officials say the $25 billion cap on foreign investment in government debt could be raised by $5 billion soon.

STAGGER IMPORT PAYMENTS

The central bank could issue rules delaying or staggering import payments, which are typically made at the end of every month, although the RBI has not taken this step in recent years.

DOLLAR-WINDOW FOR OIL COMPANIES

The RBI could open a dollar window for oil companies to buy dollars directly from the central bank instead of from markets, but it would drain foreign exchange reserves.

DOLLARS FOR OIL BONDS

The RBI could hold auctions to buy bonds from oil companies, providing them dollars or other non-rupee currencies, but the outstanding amount of oil bonds is small as the government has been giving direct cash subsidy to oil companies in recent years and has stopped issuing bonds.

ADDITIONAL FISCAL REFORMS

The government could review limits for foreign investment in sectors such as defence, or revive pension and insurance reforms, but passage through parliament could be tough.

SOVEREIGN-BACKED NON-RESIDENT INDIAN BOND

The government could issue a sovereign bond through State Bank of India to non-resident Indians, but such a move could increase the country’s debt and interest liability.

SOVEREIGN OVERSEAS BOND

The government could issue sovereign bonds to raise dollars from overseas investors, but the RBI is reluctant to expose the country to foreign exchange risks during repayment.

Reuters