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India’s rupee measures fail to cheer

MUMBAI - India took a handful of measures on Monday to support the embattled rupee but disappointed investors who had been hoping for bolder action to prop up a currency that hit a record low 
on Friday.

The Reserve Bank of India, or RBI, increased the limit on foreign investment in government bonds by $5 billion to $20 billion along with a few other relatively minor steps, causing the rupee to trim earlier gains on disappointment the measures were not more aggressive.

“Well, not the ‘shock and awe’ the market was looking for but we shall see what else gets announced. Not surprised to see USD/INR higher,” said Jonathan Cavenagh, senior forex strategist at Westpac in Singapore.

“Until they address longer-term structural issues around capital flows and competition in the domestic retail sector which can help bring down inflation pressures, I think markets will be left disappointed,” he said.

The rupee rallied earlier on Monday on hopes for measures to halt a slump in the currency. Finance Minister Pranab Mukherjee, due to step down so he can run for the largely ceremonial post of president, had said on Saturday that announcements would be forthcoming on Monday.

The rupee has fallen as India’s economic growth declined to a nine-year low of 5.3 per cent in the March quarter, piling pressure on the government and the central bank to revive the country’s fortunes. At 2:39 pm in Mumbai (0909 GMT), the rupee was at 56.96/97 to the dollar, weakening from 56.55 levels before the announcement and its intraday high of 56.37. On Friday the rupee closed at 57.12/13, down about 7.4 per cent since the start of the year, making it the worst performing currency in Asia.

The Bombay Stock Exchange’s benchmark Sensitive Index fell 90.35 points, or 0.5 per cent, to 16,882.16 points on Monday. The index traded in a range of 16,853.05 to 17,131.15. On the National Stock Exchange, the 50-share Nifty slipped 31.40 points, or 0.6 per cent, to 5,114.65 points.

Analysts said India needed to improve its economic fundamentals, including addressing its current account deficit, to bolster the rupee.

“The market was expecting a slew of measures. The measures announced now won’t have any direct material bearing on the rupee. Unless the RBI comes in with more measures, the rupee will fall back to the 57-58 to a dollar levels,” said M. Natarajan, head of treasury at Bank of Nova Scotia in Mumbai.

Other central bank measures on Monday included a reduction in lock-in restrictions on some government bonds for foreign investors, and the opening of investment in debt securities to more types of foreign buyers.

The central bank also said it modified the lock-in periods for foreign investment in infrastructure debt but did not immediately provide details. The rupee’s decline comes as emerging market currencies have weakened against the dollar as investors, worried about the global economic slowdown and the euro zone crisis, flee to the perceived safety of dollars.

Morgan Stanley estimates India’s current account deficit will widen to $72 billion by the end of June, from $49 billion a year earlier.

That would put the current account deficit at between four per cent and 4.5 per cent of India’s GDP.