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Subhash Chandra Garg, Secretary of Economic Affairs India has enough "firepower" to tackle the rupee's slide and the government could raise funds through deposits not repayable bonds, sovereign bonds or other routes. According to a senior official of the Ministry of Finance on Friday,
no such situation has emerged and the fall of the rupee is unlikely to last long, said Subhash Chandra Garg, secretary of economic affairs. "I see no need to raise rates," Garg said. The Monetary Policy Committee first raised the benchmark interest rate in May, for the first time in four years, by 25 basis points due to inflationary pressure.
Finance Minister Piyush Goyal also ruled out any reaction, and appropriate measures would be taken to stem the volatility of the rupee after taking into account the global situation. Macroeconomic fundamentals are also much better today than in 2013 when the rupiah had reached 68 against the dollar.
Analysts say that instead of using foreign exchange reserves, India is expected to raise funds via NRI bonds as in 2013. Bank of America The chief economist of Merrill Lynch, Indranil Sengupta, recently argued that a $ 30 to $ 35 billion issue would change investors' perceptions of the rupee and help stabilize it. He pointed out that all three NRI issues (1998, 2000 and 2013) had avoided contagion in the past while an interest rate defense had only been a partial success. in one case – when Bimal Jalan was governor of the Reserve Bank of India (RBI).
The rupee's volatility is fueled by global factors, including proposed US sanctions on Iran and the gap between oil supply and demand, the secretary said on Friday. . The trade war between the United States and China has further complicated the situation, discouraging capital inflows into emerging economies like India and weighing on their currencies.
The rupee has depreciated by 6.85% since January, becoming one of the poorest currencies in Asia. Thursday, he crossed for the first time the 69-point barrier against the greenback before setting a record high of 68.79 on suspicion of intervention by the central bank and selling in dollars by banks and exporters. On Friday, the national currency picked up a bit and closed at 68.46
Foreign exchange reserves rose from a record high of $ 426.08 billion on April 13 to $ 410 billion as of June 15 following a suspicious intervention by the central bank. the movement of the rupee in recent months. However, the reserves are still more than adequate to cope with the current situation, said another official at the Ministry of Finance.
The threat to the rupee comes from a series of factors. Rising US interest rates have already driven large foreign currencies out of the bond markets, while Chinese companies listed on global benchmarks like MSCI will also weigh on inflows of foreign investors into India. The uncertainties surrounding the 2019 elections add to the problems.
Some badysts have said, however, that the use of foreign exchange reserves to contain the fall of the rupee may not always succeed as desired, thanks to the growing influence of undeliverable futures. the establishment of monetary trends in recent years. The three-month dollar / rupee contracts have changed hands to 69.35 / 47 in the offshore NDF market, according to the RBI's real effective exchange rate index, despite recent depreciation the rupee was still overvalued at 18% in May, while it was over 21% the year before.
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