India Taking Steps To Revive The Rupee

Indian Rupee

In the past few months, the Indian Rupee has witnessed severe movements; however, some of the experts feel the worst may be over.  According to a report from The Wall Street Journal, government bond auctions, which have been lying low for the past few months, are now back in demand.India

The Indian currency is now up almost 9.2 percent after experiencing lows in the past month; however, the rupee is still down around 16 percent from last year.

India partnering with World Bank to allure investors

To support the rupee, the government is taking numerous measures including alluring foreign investors.  The government recently launched its debut offshore rupee bond program, in partnership with World Bank’s International Finance Corporation (IFC). The main aim of the move is to lower fears among foreign investors that India is losing its growth momentum amid policy paralysis.

According to the Financial Times, to make investment more attractive, the bonds will be offered in dollars and then will be converted back into local currency to be invested in country’s private sector. Investors in the bonds will be paid back in dollars, but the returns may fluctuate depending upon the volatility in the rupee’s interest rates and exchange rates.

Vishnu Varathan, an economist at Mizuho, told the BBC, “By co-working with the World Bank you get some of the credit risks involved with India off the table.”

Jin Yong Cai, chief executive of the IFC, told FT that the proposal was easily accepted by the rigid political environment in India. The chief executive said, “Suddenly you have all these dislocations and volatility of the exchange rate… People realise, boy, this is an important thing.”

The proposed rupee bond auction is expected to be available by the end of this year.

Ensuring more liquidity

Late last month, the central bank of the country announced moves to ensure more liquidity in the banking system. And last week, the bank announced it will purchase up to 100 billion rupees ($1.6 billion) of government bonds, and by Monday it bought 99.74 billion rupees in bonds.

In another move to boost liquidity, RBI, the central bank of the country, slashed half-a-percentage point from one of its overnight lending rates for banks, which pushed up the prices of government bonds. According to experts such moves will, apart from enhancing liquidity in the local banking system, also facilitate the central bank in selling government bonds.

Pakistani rupee weakening

Meanwhile in the neighboring country, Pakistani currency has been falling rapidly since the exit of former military ruler Pervez  Musharraf. The Pakistani rupee traded at 106.15 against Friday’s close of 105.12. Experts are of the opinion that government is not taking any measures to support the falling rupee, which may have severe consequences for the economy of Pakistan.

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About the Author

Aman Jain
Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at [email protected]

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