Chairman of the Prime Minister's Economic Advisory Council Dr C. Rangajaran may feel that the rupee’s fall could be attributed to the increase in current account deficit but he maintains that if temporary capital flow disruptions are perceived as the main reason for the currency's slide, forex reserves must be used to arrest the fall, reports said.
“If the assessment is that the rupee's depreciation is being caused by temporary fluctuations of capital flows, reserves must be used to see that impact is not felt on the rupee,” reports said quoting Rangajaran.
The rupee closed at a record closing low of 53.96 to the dollar on Monday. The domestic currency has declined 8% since the start of March.
According to forex dealers, Monday’s decline was due to the intense dollar demand from banks and importers, mainly oil refiners.
The Reserve Bank of India recently intervened in the currency market to stem the rupee’s fall. The apex bank recently directed exporters to convert 50% of the foreign currency holdings in their exchange earners' foreign currency account into rupees within a fortnight.
The interest rate ceiling on FCNR (Banks) deposits has been raised to 200 basis points from 125 basis points over LIBOR for maturities of one year to less than three years and to 300 basis points for maturities of three-five years.
Apart from these, policymakers are also discussing other measures, including introduction of a special scheme to encourage non-resident Indian (NRI) deposits and steps to lower the open interest limit on currency futures.