RBI tells exporters to sell dollars to give rupee a leg up

May 11, 2012

markets_india_rupee_14033010

Mumbai, May 11: The Reserve Bank of India ordered exporters to convert half of their foreign exchange earnings kept in bank accounts into Indian rupee to prop up the worst-performing BRICS currency, a day after it closed at a record low, prompting fears of a further slide.

But the relief lasted only a few hours before the rupee resumed its decline since the order could bring in just about $3 billion, enough to cover five days of deficit.

The RBI also cut banks' intra-day positions in currency trade to five times of the net overnight open positions, which is set by the central bank as part of curbs announced on December 15. The overnight positions are not disclosed by the central bank.

More measures, including funding crude imports from foreign exchange reserves, a new US dollar mobilisation scheme, or even a sovereign dollar bond sale to boost the currency, could be on the cards, traders speculated.

The early rally faded soon with the rupee coming off highs of 52.95 to the US dollar to close at 53.44. Its all-time closing low was 53.83, on Wednesday.

Most currencies falling against dollar

Despite a series of measures from the central bank, many believe that weak macroeconomic variables such as fiscal and current account deficits, and worsening global liquidity due to deteriorating European sovereign credit crisis may diminish the effectiveness of its response.

"The RBI announced two measures that will ease, (and) slightly reverse near-term pressure on INR, but neither fixes the underlying problems that are causing INR to depreciate," said Rajiv Mallik, senior economist, CLSA Singapore. "Further, USD squeeze also has adverse implications for onshore INR liquidity."

Half the balances in the so-called Exchange Earners' Foreign Currency (EEFC) accounts should be converted into rupee balances within a fortnight and that holds true for future earnings as well, said the central bank in a notification. Exporters will be allowed to buy foreign exchange only after exhausting US dollar deposits in their accounts.

Most currencies are sliding against the greenback as global investors retreat to the safety of US dollar amid resurgence of doubts over the future of the Euro.

The rupee has been hurt more than others since India needs US dollars from outside to pay for imports as it does not export enough to pay for imports. Most big emerging countries have a surplus since they earn more US dollars from exports than needed to pay for imports.

"The facility of EEFC scheme is intended to enable exchange earners to save on conversion, transaction costs while undertaking forex transactions in future," said the central bank. "This facility is not intended to enable exchange earners to maintain assets in foreign currency, as India is still not fully convertible on capital account."

Some recent measures of the central bank are akin to its actions during the Asian crisis of 1997-98, when it ordered companies to bring in the proceeds of share sales in the form of Global Depository Receipts.

In December last year, the central bank brought in measures to curb speculation, which helped the rupee rally in the March quarter. It has reversed since due to the government's tax policies directed at overseas investors that have increased uncertainty and also because of lack of economic reforms.

With the current account deficit, the excess of imports over exports, at 4.3% of the gross domestic product and portfolio flows tapering off, the currency could be under renewed pressure if either exports do not rise sharply, or imports do not slow.

Both are unlikely now given the state of the economy. Subsidised petroleum products keep demand high, and import of gold continues due to high inflation expectation. Slowing European economies cap export growth.

Trade deficit for April stood at $13.4 billion in April, after hitting a record of $185 billion last fiscal. Exports rose 3.2% while imports grew 3.8% to $37.9 billion.

A breather could come in the form of unconventional measures, as in the past. "There could be some unconventional measures such as the IMD (India Millennium Deposits), or the RIB (Resurgent India Bonds)," said Rohit Bammi, partner at consultants KPMG. "There's a possibility of routing crude imports through foreign exchange reserves to take out the volatility."

At the turn of the century, India raised funds through the Resurgent India Bonds, and India Millennium Deposits to improve the reserves position. These involved paying high interest rates to lure overseas Indians.

Although neither the government nor the central bank has committed to such programmes, speculation is rife due to the sliding rupee. Indeed, some believe it may be the right time to float USD sovereign bonds that could bring in some fiscal discipline and also create a benchmark for Indian corporates keen to borrow overseas.

Comments

Add new comment

  • Coastaldigest.com reserves the right to delete or block any comments.
  • Coastaldigset.com is not responsible for its readers’ comments.
  • Comments that are abusive, incendiary or irrelevant are strictly prohibited.
  • Please use a genuine email ID and provide your name to avoid reject.
News Network
March 23,2020

New Delhi, Mar 20: Prime Minister Narendra Modi on Monday appealed to state governments to ensure that rules and regulations of the coronavirus lockdown are enforced as he noted that many people are not taking the measure seriously.

"Many people are still not taking the lockdown seriously. Please save yourself, save your family, follow the instructions seriously. I request state governments to ensure rules and laws are followed," he said in a tweet in Hindi.

The Centre and state governments have decided to completely lock down 80 districts across the country where coronavirus cases have been reported.

Uttar Pradesh, Maharashtra, Punjab, Karnataka, Tamil Nadu and Kerala announced lockdown in many districts.

Delhi will be locked down from 6 am on March 23 till midnight on March 31.

Comments

Add new comment

  • Coastaldigest.com reserves the right to delete or block any comments.
  • Coastaldigset.com is not responsible for its readers’ comments.
  • Comments that are abusive, incendiary or irrelevant are strictly prohibited.
  • Please use a genuine email ID and provide your name to avoid reject.
April 16,2020

New Delhi, Apr 16: South Delhi District Magistrate Brij Mohan Mishra on Thursday said that the administration is investigating how the pizza delivery boy contracted the coronavirus.

"In the last 15 days, we discovered houses he had delivered food. We contacted people living in 72 houses and they have been asked to stay in-home quarantine. No symptoms have been seen in people related to him. 

Testing of his roommate has been done and his reports are awaited. The rest of the people don't have any symptoms, they have been placed under institutional quarantine. Those in-home quarantines are also asymptomatic," Mishra said.

"Unless a positive case comes, we feel that transmission has not taken place. The boy told us that he was continuously wearing a mask while delivering the food. We are also finding out how he got infected. We are getting the information about the places he visited for delivery. He was tested on the basis of the doctor's advice. Later, he tested positive," he said.

72 families have to stay in home quarantine in the Malviya Nagar area after the delivery boy tested positive for COVID-19 on Wednesday.
Delhi Health Minister Satyendra Jain said that 17 other delivery boys linked with the infected person have also been placed under institutional quarantine.

"A pizza delivery boy has been detected with COVID-19 here. 17 other delivery boys linked with him have been placed under institutional quarantine and 72 people have been placed under home quarantine," Jain said.

Food delivery app Zomato said that the staff of the infected person's restaurant has delivered some orders which were placed on its platform.

"We've been made aware today that a restaurant's employee, who has been recently tested positive for COVID-19, had delivered food in the past to a few customers in the Malviya Nagar area in Delhi. All these customers have already been contacted by the govt authorities... We are not sure whether the rider was infected at the time of delivery," the company said in a statement.

Zomato also claimed that colleagues of the delivery boy have tested negative for COVID-19.
"This restaurant had instructed their riders to wear masks and follow strict hygiene to keep customers safe from any unintended mishap.

All co-workers of the said rider have been tested negative. And as a precaution, the restaurant where this rider worked has suspended operations," read the statement.

Comments

Add new comment

  • Coastaldigest.com reserves the right to delete or block any comments.
  • Coastaldigset.com is not responsible for its readers’ comments.
  • Comments that are abusive, incendiary or irrelevant are strictly prohibited.
  • Please use a genuine email ID and provide your name to avoid reject.
News Network
June 24,2020

New Delhi, Jun 24: A litre of diesel on Wednesday was more expensive than a litre of petrol after the price of the former was hiked by 48 paise on the 18th successive day of fuel price revisions. While petrol price remained unchanged for the first time since June 7, diesel prices maintained upward trajectory to touch new highs.

It is for the first time in Delhi that diesel has become more expensive than petrol. A litre of the fuel now costs ₹79.88 as against ₹79.76 for a litre of petrol, as per a report in news agency ANI.

While surging fuel prices may generate much-needed revenue for governments, it would also have a detrimental impact on household budgets. The spike in diesel prices also has a wider impact on the transport and agricultural sectors which are largely dependent on the fuel.

The widest gap between the prices of the two fuels was on June 18 of 2012 when a litre of petrol was at ₹71.16 in Delhi while diesel was at ₹40.91. On June 28, the gap between the two fuels was 31.17 per litre in Mumbai. Around that time, there was a spurt in sales of diesel passenger vehicles while demand for such vehicles has come down significantly in current times. This has also led many manufacturers to ditch diesel engines completely.

The current trend of fuel price hikes are unlikely to do demand for petrol vehicles much good either.

Daily price revisions of the two fuel had been temporarily halted for 83 days till it was resumed on June 7.

India's demand for fuel doubled in May and has been steadily rising in June with the easing of restrictions. Indian refineries have already scaled up crude processing with Indian Oil Corp, the country's top refiner, looking to operate its plants at about 90% capacity in June.

The rising fuel prices, however, have resulted in political uproar with Congress leading the charge against the central government and accusing it of penalising consumers by imposing high taxes. A demand for including fuel prices under Goods and Services Tax (GST) has also been renewed by many but it is highly unlikely that it would happen. With oil companies looking to cut back on their previous loses and governments - central as well as states - aiming to generate revenue after tumultous weeks of lockdown, fuel price hikes are likely to stay till at least the end of June.

Comments

Add new comment

  • Coastaldigest.com reserves the right to delete or block any comments.
  • Coastaldigset.com is not responsible for its readers’ comments.
  • Comments that are abusive, incendiary or irrelevant are strictly prohibited.
  • Please use a genuine email ID and provide your name to avoid reject.