RBI measures to curb rupee depreciation

RBI (Reserve Bank of India) announced swerve measures to curb the Rupee fall against the Greenback. The term Green back comes from the U.S. which refers to the legal tender. An overview of measures taken by RBI:

  • Raising cost of borrowing by banks by 2 per cent to 10.25 per cent
  • Announcing sale of bonds worth Rs 12,000 crore through open market operations to suck liquidity from the market
  • Hiked the lending rates for banks
Rupee vs Dollar
Rupee vs Dollar

Why did RBI take such steps?

  • To check the rupee slid, which went down to as low as 61.21 against dollar last month
  • To curb excessive volatility and reduce the speculation
  • To stabilize the rupee
  • Reducing volatility in the forex market

The main reason of tightening the liquidity of Rupee is the decline rate of the rupee, which is increasing day by day against the U.S. Dollar.  According to the news and sources, rupee gained a sturdy 64 paise to 59.25 in early trade on fresh dollar selling by exporters. When we talk about the Monday closing, the rupee resumed higher at 59.20 per dollar and 59.89 per dollar at Forex market.

Conceding some of the early gains of rupees, now it was trading higher by 45 paise to 59.44 in late morning pacts on dollar selling by banks after the announcement of RBI in context to arrest the local currency fall against Dollar. Subsequently, a slew of measures by RBI will be raising cost of borrowing by banks by 2 per cent to 10.25 per cent. RBI announcement stated to make the currency costlier for banks to access funds from the central bank. However, it was trimmed at its initial gains and quoted at 59.44 per dollar on some dollar demand from bank and importers on the back of higher dollars rate.

The value of the rupee will depend on how much foreign exchange we earn and how much we spend.  P Chidambaram stated that this value of Rupee is due to the high current account deficit and inflation in the economy.  From the growth perspective, Chidambaram stressed that the measures taken by the RBI “will in no way affect our commitment to growth. We must increase credit delivery and must stimulate growth”.

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