The central bank intervened in the foreign exchange market on Thursday to stop the rupee’s slide towards a record low as its defence of the currency, built around draining cash from money markets, came under rising pressure.
With the RBI struggling to hold the line, investors doubt if the government can take swift, credible action to cut the current account deficit despite finance minister P Chidambaram’s assurances.
“The market wants real action,” said Param Sarma, chief executive at NSP Forex, a consultancy in Mumbai. “The government and RBI want to keep rupee under control to check inflation and to ultimately reverse tightening measures so they can support growth.”
Sarma and his ilk believe New Delhi could opt to issue a bond aimed at drawing inflows from expatriate Indians.
The RBI on Thursday tightened hedging rules for foreign institutional investors in currencies, requiring investors who have issued participatory note contracts, to get approval from the note-holder before hedging.