We told you so… Steps to stem rupee's slide will not work
As expected, steps announced by the Indian government to support the falling Indian rupee failed to reverse its trend as they turned out to be rather underwhelming.
The Indian rupee, which had firmed earlier in the day on Monday in the hope of some substantial announcements weakened again after the announcements turned out to be much milder than what the market participants had hoped for.
The rupee was trading at Rs15.54 vs. Dh1 (Rs57.05 vs. $1) at 8.30am UAE time (4.30am GMT), pretty much near the levels it was trading on Sunday before the hopes of some meaningful measures pushed the rupee stronger.
However, when the Reserve Bank of India (RBI), the country’s central bank, announced the mild measures, the move was almost instantly termed by analysts as ‘too little, too late’.
The RBI increased the limit on foreign investment in government bonds by $5 billion to $20 billion, increased the external commercial borrowing limit for manufacturing and infrastructure firms by $10 billion to $30 billion, and allowed qualified institutional investment in mutual funds that hold 25 per cent of their assets in the infrastructure sector.
Further, it allowed FIIs to buy bonds with a residual maturity of three years compared to an earlier five, subject to a $10-billion ceiling.
The package failed to cheer up the market.
With latest measures from none other than the finance ministry being thumbed-down by the markets, analysts now believe the rupee is in for further drumming. “The FMs last effort to earn some brownie points boomeranged on him,” said V.K. Sharma, Head of Private Broking and Wealth at HDFC Securities.
In an opening note on Indian equities this morning, Sharma observed that “[n]either the rupee (no meaningful bounce) nor the markets showed any signs of appreciation [after the announcements].”
Mukherjee had last Saturday told reporters in the Indian city of Kolkata that the government was shoring up a package to revive the ailing rupee, and in the same press meet he had announced that he would be resigning his position as the country’s Finance Minister to run for Presidential elections due soon.
“[T]he package to revive the economy and stem the rupee slide didn’t quite live up to its promise,” said HDFC Securities’ Sharma. “The slew of steps taken on Monday lacked boldness and were of the run-of-the-mill kind,” he added.