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India takes steps to lift the Rupee
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Publish Date25/06/2012 10:09:24 AM
Last Update25/06/2012 10:52:25 AM
The Reserve Bank of India (RBI) announced on Monday steps to boost economic confidence and halt the rupee’s depreciation, which hit a record low on Friday, threatening to intensify inflationary pressures and mirroring a decline in economic growth to a nine-year low.
The central bank mainly decided to allow non-resident Indians to buy Indian government bonds, like sovereign wealth funds, pension funds, insurance funds and foreign central banks, with a limit that was raised by $5 billion to $20 billion.
The RBI also lifted the external commercial borrowings limit to $40bn from $30bn earlier, which comes as a relief to manufacturers since it helps repay the outstanding rupee loans that are more expensive.
Since the decision was expected after Finance Minister Pranab Mukherjee said during the weekend that the government would unveil measures on Monday, markets reacted negatively since investors expected much more from the officials.
The BSE Sensex 30 fell 0.55% to 16878.99 as of this writing, while the rupee continued to fall trading around the 56.80 level, after hitting a record low of 57.32 on Friday, and analysts expect the rupee to continue falling the worsening global risk environment.
Last week India’s central bank unexpectedly left interest rates unchanged since inflation was above “tolerance level”. And while Moody’s reaffirmed its stable outlook on India today, Fitch said last week India is at risk of being downgraded to junk, joining S&P.
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