Jun 24 2012
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'Further rupee fall depends on India's measures on Monday'
Indian government and the Reserve Bank of India (RBI) are expected to announce measures tomorrow to halt a slide in the rupee, which sank to a record low on Friday.
"Pranab Mukherjee is expected to announce some measures on Monday. But we have to see the effectiveness of these measures,- said Ravindra Naidu, General Manager of Mustafa Sultan Exchange.
Meanwhile, remittances of Indian expatriates have shown only a marginal growth in the last couple of weeks, despite rupee touching an all time low of 148.35 per rial.
"This was mainly due to lack of funds with expatriates as salaries will come only after 25th of this month.
We expect the remittances to grow further towards the month-end due to vacation rush as well,- he noted.
"A section of expatriates is waiting for the rupee to fall further to 150-level,- added B. Rajan, General Manager of Al Jadeed Exchange.
Rajan added that the growth in remittances of Indian rupee in his exchange this month was moderate at 10 per cent, which was not "up to our expectation.- The rupee is the worst-performing currency of the past year, having tumbled 21 per cent against the dollar, and reached an all-time low of 57.3275 on Friday versus the greenback.
Rajan said his company's remittance volume soared by 20-25 per cent in May (over the previous month), which was the highest monthly growth this year. "This was mainly due to remittances made by those who go on leave for India on vacation there,- added Rajan. Majority of expatriate workers has already remitted their savings in the last couple of months, after the Indian currency started plunging below Rs140-level.
Rajan expects the rupee to depreciate further in the short-run to 150-155 levels, mainly due to the inherent weakness of Indian economy and the fact that the government so far did not do enough to arrest the decline.
Apart from European crisis, India's current account deficit, foreign institutional investors (FIIs) taking out their investments, and downgrading of Indian economy by major rating agencies are also affecting the currency value.
Rajan said small time Indian investors, who arranged money for investment in Oman, are also remitting the funds to India due to attractive rates. "Some of these investors are sending huge money back home.-
Plans to curb rupee slide
Finance Minister Pranab Mukherjee said the government and the RBI will announce measures on June 25 to halt a slide in the rupee.
His comments were made yesterday and broadcast on local television news channels, including ABP news. Mukherjee is the ruling Congress Party's nominee for a July 19 presidential election and he told Press Trust of India that he will resign as finance minister today. The report did not say who his successor will be. Fitch Ratings cut India's sovereign credit-rating outlook to negative on June 18, joining Standard & Poor's in signaling the country is at risk of losing its investment-grade status.
"The situation is quite worrisome,- Dharmakirti Joshi, Mumbai-based chief economist at Crisil, the local unit of S&P, said in an interview yes. "You have to increase the supply of dollars. A lot of foreign currency convertible bonds and other payments are due and it does create stress on those who have borrowed abroad.-
India may start a sovereign-backed deposit scheme to attract foreign currency from overseas residents and relax limits on foreign investment to halt the rupee's slide, according to Joshi. The Prime Minister's chief economic adviser, Chakravarthy Rangarajan, on May 23 said the deposit scheme was an option.
Indian companies face a record $5.3 billion of maturing foreign-currency debt this year.
The RBI on November 17 increased the caps on overseas investors' holdings of India's local-currency government debt and corporate bonds by $5 billion each to boost inflows and arrest the currency's decline.
The central bank has asked oil refiners to obtain 50 per cent of their dollar requirements from a single state-owned bank, Oil Secretary G. C. Chaturvedi told reporters in New Delhi.
India buys 80 per cent of its oil from overseas and pays for supplies in dollars. Every one-rupee drop in the domestic currency against the dollar boosts annual revenue losses for the three government-owned refiners by Rs80 billion ($1.4 billion).
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