Indian efforts to tackle weak rupee fail to buck falls

Salil Panchal
An Indian journalist speaks on a phone outside the head office of the Reserve Bank of India (RBI) in Mumbai, 2011. India announced a slew of economic measures, including raising the foreign investment cap for government bonds, to boost the rupee, which has fallen to record lows against the dollar

India on Monday announced a slew of measures to boost the rupee, which has fallen to record lows against the dollar, but the currency and stocks slid as investors were left unimpressed by the moves.

The Reserve Bank of India (RBI), in consultation with the government, unveiled the measures to try to attract increased foreign in-flows as the rupee has been hit by India's slowing economic growth and global uncertainty.

In one headline move, the RBI said that the limit on foreign investment in government bonds had been raised by $5 billion to $20 billion.

The rupee, which has depreciated more than 10 percent since April, fell to 57.05 against the dollar after Monday's announcement due to disappointment over the lack of any "big-ticket" reforms to kick-start growth, analysts said.

Indian shares also ended down 0.53 percent at 16,882.16 at the close of trade on Monday.

Montek Singh Ahluwalia, deputy chairman of the government's influential Planning Commission, dismissed the market reaction to the bank's announcement.

"I am hopeful it will bring back confidence," Ahluwalia told reporters. "This is very difficult time for whole global economy.

"I wouldn't judge the measures by the markets... The underlying strengths of the economy are more than what the rupee movement suggests, markets movements do not always necessarily reflect what is the long-term position.

"The economy looks a bit a weak... lots of steps are being taken by the government to correct them."

But analysts and forex experts were not enthused and said they expected the rupee to weaken further in coming days after the currency touched a record low of 57.32 against the dollar last week.

Abhishek Goenka, chief executive of India Forex, a consultancy firm, called the measures "too small and a mere formality."

"If the government had not done anything, it might have been better," he told AFP.

Siddhartha Sanyal, chief India economist with Barclays Capital said the RBI's announcements were "moderate" and could only "somewhat support" the rupee, as expectations from the government or the central bank were too high.

Other measures taken by the RBI on Monday included allowing sovereign wealth funds, endowment funds, pension funds and foreign central banks to invest in government bonds.

But most observers say that unless the government takes structural measures to boost economic reforms and revive the confidence of foreign investors, the local currency was unlikely to appreciate in the coming weeks.

As the eurozone crisis deepens, foreign investors have been pulling out funds from riskier markets such as India, selling equities worth $323.16 million since March.

The once-booming economy is suffering from slowing industrial growth, troublesome fiscal and current account deficits and a stalled reform agenda.

The economy grew just 5.3 percent in January to March, its slowest quarterly expansion in nine years.