Speculation that the government might hike the price of diesel by as much as R3-5per litre, in a one-time measure to save on subsidies, helped the sentiment in equities. The Sensex put on 404.89 points to end the session at 18401.04. Bonds rallied with the yield on the benchmark bonds, coming off by 19 basis points to 8.781% although they rose to 8.876 in intra-day trades after nudging 9% on Wednesday. The RBIs plan to supply dollars directly to oil companies via foreign-exchange swaps may boost the rupee toward 65 per dollar, analysts pointed out. Typically, refiners pick up approximately $300-350 million a day from the market. The last time the RBI made special arrangements for supplying dollars to oil firms was after the Lehman crisis in 2008.
Meanwhile, RBI governor Duvvuri Subbarao said on Thursday that while the speed and timing of the currencys depreciation may be linked to the US Federal Reserves plan to taper its quantitative easing programme, the root cause of the currency weakness lay in domestic structural factors. Throwing the ball in the governments court, Subbarao said the only lasting solution to Indias external sector concerns is to reduce the CAD. Reducing the CAD requires structural solutions the RBI has very little policy space or instruments to deliver the needed structural solution. They fall within the ambit of the government, he observed.
It cannot be denied that the country is faced with a difficult economic situation, Prime Minister Manmohan Singh said after leader of the Opposition Arun Jaitley sought his response on the rupee hitting a life-time low.
There are several causes and I do not deny some domestic factors too are responsible, he said. Listing some of the external factors that have impacted rupee and Indian economy, Singh said US monetary stance and problems created by tensions in Syria and its inevitable consequences on oil prices have played their role. We have to reckon with these uncertainties, he said, adding he needed some time to reflect on these. The PM will make a statement on the state of the economy on Friday.