RBI announces fresh steps to tackle rupee volatility

Jul 16 2013, 05:50 IST
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SummaryThe measures came after high level meetings between the Prime Minister and the Finance Minister

In a move to stem the continuing fall of rupee, the RBI tonight came out with a slew of measures

including hiking the lending rates for banks and sucking up of

Rs 12,000 crore, to make the currency dearer.

The measures came after high level meetings between the

Prime Minister and the Finance Minister followed by

discussions with RBI Governor D Subbarao who was called here

today as the rupee lost 33 paise to reach 59.89 after touching

over 61-levels last week.

Under the measures announced, RBI raised lending rates to

commercial banks 2 per cent to 10.25 per cent making the loans costlier.

The RBI will conduct sale of Government of India Securities to suck up Rs 12,000 crore on July 18 from the market, in a move to make rupee dearer.

Government has been under attack over the continuous

decline of rupee from 53.8 levels against dollar in April.

Yesterday, Gujarat Chief Minsiter Narendra Modi had made a

blistering attack on government's financial management,

including rupee, and targeted Prime Minister Manmohan Singh

calling him a "failed economist".

The Marginal Standing Facility (MSF) rate has also been

increased to 10.25 per cent from current 8.25 per cent. Repo

rate has been left unchanged.

"The Marginal Standing Facility (MSF) rate is calibrated

with immediate effect to be 300 basis points above the policy

repo rate under the Liquidity Adjustment Facility (LAF)...

Accordingly, the Bank Rate also stands adjusted to 10.25 per

cent with immediate effect.," the release said.

Introduced during the 2011-12 period, MSF allows banks to borrow money from the central bank at a higher rate when there is significant liquidity crunch.

The central bank said it could take more measures

depending on market conditions, liquidity situation and the

macroeconomic developments.

These steps would be "consistent with growth-inflation

dynamics and macroeconomic stability," RBI said.

"The overall allocation of funds under the LAF will be

limited to 1.0 per cent of the Net Demand and Time Liabilities

(NDTL) of the banking system, reckoned as Rs 75,000 crore for

this purpose," according to the release.

According to RBI, the market perception of likely

tapering of US Quantitative Easing has triggered outflows of

portfolio investment, particularly from the debt segment.

"The exchange rate pressure also evidences that the demand

for foreign currency has increased vis-a-vis that of the Rupee

in part because of the improving domestic liquidity

situation."

RBI said the rupee has depreciated markedly in the last

six weeks. Countries, it said, with large current account

deficits, such as India, have been particularly affected

despite their relatively promising economic fundamentals.

Last week, RBI had asked oil firm to source all of their

8-8.5 billion of dollar needs

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