People familiar with the matter told ET that commercial banks have also suggested imposition of temporary curbs on imports of ‘non-essential’ goods, such as gold, to conserve dollars. An unabated surge in the dollar could prompt targeted interim measures from Mint Road.
“The RBI cannot allow a free fall in the rupee’s value against the dollar. This is not good for any emerging-market currency,” said Anindya Banerjee, currency analyst, Kotak Securities. “India, the fifth largest economy, needs to show resilience against the dollar strength, which in turn calls for more measures than plain-vanilla market interventions.” The RBI did not respond to ET’s mailed queries.
‘Mkt Interventions not Enough’
Market sources said even bilateral trade through ‘rupee invoicing’ or the rupee account can help bypass the dollar, limiting its demand. For instance, if oil companies import fuel from, say, Russia and meet its payment obligations in rubles, the demand for dollars goes down.
The rupee, which hit lifetime lows of 81.66 to the dollar Monday, climbed a tad Tuesday to close at 81.58.
The dollar index, which measures the US currency’s relative strength or weakness against a wide set of currencies, is at its highest since the turn of the millennium. Just shy of 114, the gauge has climbed more than a fifth in a year, with nearly half of that appreciation accruing in the past three months.
The RBI has used its forex stockpile across platforms – spot, futures, forwards and non-deliverable forwards markets – to prevent the rupee’s rout in calibrated interventions. But the sharp dollar surge, which hasn’t spared even the pound, euro and the yen, has prompted the hunt for measures beyond conventional interventions that use up assiduously built reserves and cause the macroeconomic picture to deteriorate.
“Market intervention alone cannot resist a global headwind,” said Anil Bhansali, head of treasury, Finrex Treasury Advisors. “Either the central bank has to cut dollar demand via an oil window or it needs to ensure oil trades through a rupee account. That should help stabilise the rupee.”
Under a special-purpose oil window, oil marketing companies can avail dollars offshore from the RBI at a specified rate, and these can be repaid only at a later date without involving rupees.
“So far, the RBI has managed the show well in helping cut the rupee’s wild swings,” said Amit Pabari, CR Forex, a Mumbai-based firm. “However, it cannot keep on spending forex reserves. It is natural for the RBI to come out with other measures to control the rupee’s drastic drop.”
India’s forex reserves have depleted nearly $100 billion to $545.6 billion on September 16 this year. It peaked at $642.4 billion on September 3, 2021.
Through the so-called Taper Tantrum in 2012-13, the RBI had allowed banks to raise foreign currency funding and swap them into rupees at a concessional rate of 1% below market. This helped draw deposits from non-resident Indians. With other allied measures, the central bank had then brought in about $34 billion.
On July 6 this year, the RBI permitted banks to garner FCNR (B) and NRE deposits from the Indian diaspora without any interest rate cap. These measures are due to expire late autumn. Companies have also been encouraged to raise external commercial borrowings. However, the measures don’t seem to have helped much in mitigating the pressure on the rupee.
“Those measures are more beneficial for banks while offshore NRI customers need to be incentivised,” said a dealer.