After trying the interest rates, forex reserves, India is considering more steps to stop the fall of the rupee; discover here

The rise in the interest rate and the accumulation of billions of dollars in foreign exchange reserves have done little to reverse the rupee's position as the weakest currency from Asia this year. If things get worse, India could turn to other weapons in its arsenal, economists say. With the worsening of the current account deficit, thanks to the rise in oil prices and the outflow of equities and bonds, the rupee could experience another weakness after plunging to a record high of 69.0925 against the dollar in the month. latest. The currency gained 0.1% to 68.7725 Wednesday

Here are some of the steps that policymakers might consider if it were to happen:

Rates Rise

The Reserve Bank of India Raised Rates for the first time in four years, and is likely to follow over the next few months, prices in the swap market show. The central bank does not target the exchange rate and allocates any rate to its goal of containing the price increase.

"She may not admit it, but one of the reasons for this increase is to maintain stability on the rupee front." Said Rupa Rege Nitsure, chief economist at L & T Finance Holdings Ltd. in Mumbai. India is not alone in raising rates in Asia. Indonesia has aggressively raised rates in recent months, while the Philippines has tightened its policy by seeking to support their currency.

Intervention

The RBI is suspected of intervening regularly on the foreign exchange market. Kotak Securities Ltd. estimates that the central bank probably intervened in the currency futures market by $ 2.5 billion in May – the highest of all the months since the beginning of the year – and $ 2 billion in June. This compares with $ 3.6 billion for the entire January-April period, according to RBI data.

On the spot market, it intervened at more than 8 billion dollars in April and May. India's foreign exchange reserves have dropped to $ 406 billion, of which nearly $ 100 billion in short-term debts, assets that the RBI considers hot money and that may leave the country at any time.

The trade war is the new weapon in the city. India, with its past experience of using higher tariffs to reduce imports, could use it to reduce the current account deficit. In the aftermath of taper crises in 2013, India increased import duties on gold bullion and jewelry. Entries decreased, helping to reduce the current account gap. This time, imports of electronic products have exceeded the gold

Non-residents

One of the last resort will be to turn to the rich non-resident Indians for replenish their precious foreign currency reserves. Indranil Sen Gupta, an Indian economist at Bank of America Merrill Lynch, says that if capital flows do not return, the RBI will have to sell $ 20 billion to finance a current account deficit of 2.4 percent of GDP. product. In addition, authorities may have to rely on non-resident Indians.

The sale of non-resident Indian bonds to raise $ 30 to $ 35 billion is what Gupta expects if the rupee crosses 70 percent without any foreign portfolio reversal. Secretary of Economic Affairs Subhash Chandra Garg said that India had this option and a sovereign bond issue.

Fight Panic

Verbal intervention is always an option. While the RBI said it does not target any level for the exchange rate, Garg said India had "firepower" enough to cope with the decline of the rupee. Rajiv Kumar, vice president of the NITI Aayog think-tank, said this month that the rupee was overvalued at a real effective exchange rate.

The trade-weighted effective exchange rate of 36 countries fell to 115.31. shows. A year ago, this index was at 119.13, with a level above 100 suggesting an overvaluation, while a lower level suggests undervaluation. Madan Sabnavis, chief economist at Care Ratings Ltd., said the rupee would be guided by trade wars, sanctions against Iran, oil prices and the decisions of the US Federal Reserve. "The rupee will be tested at each interval."