RBI should boost dollar supply: Assocham

The sudden jerk in rupee is a bad news for the economy as it would also compound the problems on account of current account deficit

June 11, 2013 9:58 IST | India Infoline News Service
ASSOCHAM on Monday made a strong plea to the Reserve Bank of India to intervene and check the slide in rupee as a weak rupee coupled with FII outflows, particularly from the Indian debt market, has serious implications for the Indian economy.

"The erosion in rupee value, though in line with other emerging markets, against the US dollar, has come at a time when the industry at last was hoping that the worst was over the Indian economy, with the Wholesale price Index (WPI) receding and chances improving for the RBI to cut the policy interest rates”, ASSOCHAM President Rajkumar N Dhoot said in a statement.

However, the sudden jerk in rupee is a bad news for the economy as it would also compound the problems on account of current account deficit because the FIIs are withdrawing from the Indian debt markets. On the other hand, the inflows on capital account are quite slow, added Mr. Dhoot.

Yet another worry is the implication of the rupee weakness on the landed cost of crude oil prices, which in any case are looking up in the international market. A weak rupee will increase the landed cost of crude oil which has a huge implication for the overall inflation situation in the country.

"Under these circumstances, RBI should actively sell dollar rather aggressively and tame the US currency. On its part, the Finance Ministry should continue to take more measures to encourage capital inflows. Only then, rupee will regain strength," said Mr. Dhoot.

While a weak rupee would help exporters, the net-net gain would not be so much to make up for the huge price that it carries on the economy, the chamber said.
The rupee dropped to a record low in early trade on Monday tracking gains in the U.S. dollar after disappointing data from China and slightly better-than-expected U.S. jobs data.

Traders are on watch of any intervention from the RBI. There has been little indication the Reserve Bank of India has intervened to prevent rupee weakness in recent sessions, according to traders.

The partially convertible rupee was trading at 57.37/38 per dollar after hitting a record low of 57.38, past the previous all-time low of 57.32 hit in June 2012. The rupee had closed at 57.06/07 on Friday.

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