RBI can sell USD 25 bn more to arrest rupee fall: SBI report
Mumbai, Sep 18 : The Reserve Bank of India (RBI) should intervene in both spot and forward markets to arrest Indian rupee's depreciation, suggested a State Bank of India (SBI) Ecowrap report on Tuesday.
As per the report, during the June 2008 to May 2009 period, when rupee depreciated by 13 per cent, the RBI sold dollars worth $43 billion, though the forex reserves at that time stood at $312 billion.
The report cited that even during 1990s, when the total forex reserve was less than $40 billion, the RBI had intervened in the market by selling 8-9 per cent of total reserve to rein in a fall in rupee.
"So, we believe in the present scenario, RBI could go up to its tolerance limit of 10 per cent (a crude proxy of the average ratio over all periods) by selling at least an additional $25 billion in the forex market," the report said.
The apex bank is known to enter the markets via intermediaries to either sell or buy US dollars to keep the rupee in a stable orbit.
In addition, the report said that oil companies may also be asked to purchase all their USD requirements directly from the RBI through a single bank, an arrangement that was used in 2013.
"Further, oil companies may also be asked to borrow USD for import payments directly from foreign branches of Indian Banks. These funds may be borrowed for longer term instead of the very short-term funds borrowed currently," the report said.
The report comes on a day when latest global trade protectionist measures, along with high crude oil prices, dragged the Indian rupee to a fresh low of 72.98 per US dollar.
At 5 p.m on Tuesday, the rupee closed at 72.98 per greenback from its previous close of 72.51 per dollar. It had opened at 72.60 per US dollar at the Inter-Bank Foreign Exchange Market and remained range bound.
However, the Indian currency's slide commenced from 4.45 p.m onwards as it touched 72.96 breaching its previous intra-day record low of 72.91 made on September 12.
According to analysts, concerns over a rise in inflation rate, growing protectionism in global trade and an outflow of foreign funds from the country's equity market have had an adverse impact on the Indian currency.
"After comments surfaced that Saudi Arabia is comfortable with higher crude oil prices, Brent prices jumped. At the same time, news came that China has warned of retaliation in trade," said Anindya Banerjee, Deputy Vice President for Currency and Interest Rates with Kotak Securities.
"Both these news, triggered a sharp decline in Chinese currency and rupee. Weak rupee caused a sell-off in Nifty."
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India describes attack on Fujairah 'unacceptable'
New Delhi (PTI): India on Tuesday described the wounding of three Indians in an attack on the United Arab Emirates' port city of Fujairah as "unacceptable" and pressed for an immediate cessation of hostilities targeting innocent civilians.
New Delhi's reaction came a day after the Indians were injured after a drone attack caused a fire at a major oil industry zone in Fujairah. The UAE had accused Iran of carrying out the strike.
"The attack on Fujairah that resulted in injury to three Indian nationals is unacceptable," External Affairs Ministry spokesperson Randhir Jaiswal said.
"We call for immediate cessation of these hostilities and the targeting of civilian infrastructure and innocent civilians," the spokesperson said.
Jaiswal said India continued to stand for dialogue and diplomacy to deal with the situation so that peace and stability could be restored across West Asia.
"We also call for free and unimpeded navigation and commerce through the Strait of Hormuz in keeping with international law. India stands ready to support all efforts for a peaceful resolution of issues," he said.
The attack on Fujairah city came as the ceasefire between the US and Iran came under strain in the Strait of Hormuz.
The Strait of Hormuz, through which roughly one-fifth of the world's oil and gas pass, remains a major sticking point in the talks. Shipping through the narrow Gulf waterway has been severely disrupted by the conflict, triggering a sharp increase in oil prices and energy shortages in several countries.
The UAE's defence ministry on Monday said its air defence systems engaged 12 ballistic missiles, three cruise missiles and four drones launched from Iran.
The ministry affirmed that it "remains fully prepared and ready to deal with any threats and will firmly confront anything that aims to undermine the security of the country."
