The Reserve Bank of India announced fresh measures today to drain out rupees from the financial system to tackle the volatility in the currency markets after a slew of steps announced last month failed to support the battered currency.
The steps came hours after Raghuram Rajan was appointed officer on special duty for three weeks to provide an overlap with Governor D Subbarao. The RBI announced it will auction short-term government cash management bills of Rs 22,000 crore every Monday without specifying for how many weeks the sales would last.
Speaking to reporters after the RBI’s central board met in Mumbai, Rajan said the challenges facing the economy and the rupee would be overcome. “It is a challenging environment but we will overcome it.”
Next week the RBI will mop up a massive Rs 50,000 crore from the market with an auction every day, said Jayesh Mehta, country treasurer and managing director at Bank of America Merrill Lynch. “Some steps were on the cards. Bond traders will be looking for directions from the new Governor,” he added.
On July 15, the RBI had unveiled measures that included raising short-term interest rates, and followed up with additional steps on July 23. But this failed to yield results, with the rupee down 1.6 per cent since the initial measures were announced and hitting a record low of 61.80 on Tuesday.
The duration of the auction will be announced one day prior to the date of auction.
Today the rupee recovered from an all-time closing low, moving up 42 paise to end at 60.88 against the dollar. Yesterday, the rupee had closed at 61.30 to the greenback. Meanwhile, in Delhi, economic affairs secretary Arvind Mayaram suggested that finance minister P Chidambaram is likely to unveil more measures. “I think you should wait till the end of the week... he will be talking about this later,” Mayaram said.