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The measures by the Reserve Bank of India (RBI) to arrest the volatility in rupee are not adequate, said Anand Mahindra, Chairman and Managing Director, Mahindra & Mahindra.
"And the Rupee is skydiving without a parachute again. A signal that unsterilised band-aid isn't the solution," he wrote on Twitter.
The rupee breached the Rs 61 per dollar mark in early trades today due to month-end dollar demand by importers and no concrete steps announced by the Reserve Bank of India (RBI) in the first-quarter review of the monetary policy held yesterday. At 12 noon the rupee was quoting at Rs 61.09 compared with previous close of Rs 60.49 per dollar.
Mahindra further wrote that the enduring remedy is more reform, across ministries, & incentivization of manufacturing & exports.
"Choking liquidity is a death wish," he said via his Twitter handle.
RBI has taken several measures to contain the exchange rate fluctuations. On July 8, banks were asked not to carry out any proprietary trading in the currency futures/ exchange traded currency options markets. In other words, any transaction by banks in these markets will have to be necessarily on behalf of their clients.
Following this, on July 15, it announced an increase in marginal standing facility (MSF) and bank rate to 10.25% (increase of 200 bps). It also limited repo under liquidity adjustment facility (LAF) to Rs 75,000 crore. Above this, funds are available at the MSF rate. On July 22, the LAF borrowing cap tightened to 0.5% of each bank’s deposits. RBI has also mandated that banks must keep daily cash reserve ratio (CRR) balance of 99% (of requirement).
