Though the Reserve Bank of India (RBI) has taken a slew of measures to stem the rupee’s volatility, the Survey has called for more aggressive steps, as it impacts investors’ confidence.
“The rupee has experienced high volatility in the last few years. Such volatility impairs investor confidence. A more aggressive stance to check (this) is, therefore, necessary,” the Survey said. It added, when the rupee depreciates, it has implications for corporate balance sheets and profitability in case of high exposure to External Commercial Borrowings (ECBs).
In the current financial year, on a month to month basis, the rupee depreciated 12.4 per cent from Rs 44.97 for a dollar in March 2011 to Rs 51.34 per dollar in January 2012. After reaching a peak of Rs 43.94 on July 27, 2011, it hit a record low of Rs 54.23 against the greenback on December 15, a depreciation of 19 per cent. It was 50.40 against the dollar in today’s trade.
“Subdued foreign institutional investor (FII) inflows led to a sharp depreciation in the rupee in the forex market, though much of the depreciation was due to a flight to safety by investors, given the meltdown in Europe and inflation in the emerging markets,” the Survey said.
To arrest the slide, the apex bank had taken a slew of measures, by relaxing the ECB limits and capital control norms. RBI raised the ECB limit under the automatic route to $750 million, from $500 million. The FII limit for investment in government securities and corporate bonds were raised to $15 billion and $20 billion, from $10 billion and $15 billion, respectively.
“As a result of these measures, and increase in capital inflows, the depreciating trend in the rupee-exchange rate reversed. The monthly average exchange rate of the rupee appreciated by 2.6 per cent from 52.68 per dollar in December 2011 to 51.34 per dollar in January 2012,” it said.