Rupee recovers from life low, but is the worst over yet? - Economic Times

Prices | Financials | Company Info | Reports MUMBAI: All the king's men stepped out on Tuesday to prop up a battered rupee and deal a blow to currency speculators. As the rupee plunged to a new low, the government's Chief Economic Advisor, Raghuram Rajan, said India is planning to float either sovereign or non-resident bonds as well as liberalise rules on foreign direct and portfolio investments. Arvind Mayaram, secretary at the department of economic affairs, told reporters that the demand for dollars to buy gold has declined from a peak of $227 million to $7 million a day. And, a stubborn RBI sold dollars as the rupee's rapid fall threatened to unsettle fiscal calculations and revive fears of a downgrade. The impact was swift. Within minutes, the rupee recovered in afternoon trades from a lifetime low of 58.98 to close the day at 58.39 against the dollar. But it was still weaker than Monday's closing of 58.15. As exports and imports are inelastic in the short run, a back-of-the-envelope calculation shows growth dips over 0.1 per cent due to a direct trade impact for a 10 per cent fall in rupee, said Sujan Hajra, chief economist at Anand Rathi Securities. The rupee has declined 7.5 per cent since May 1. But is the worst over? "The reality is all currencies in the emerging market basket are underpressure," said Hitendra Dave, head-global markets at HSBC. But if government officials had not talked up the currency and RBI had not done a veiled intervention, selling about $200-300 million, Tuesday's fall would have emboldened traders shorting the rupee. A wider current account deficit and currency movements in economies like Brazil, South Africa and India have driven many proprietary debt funds to sell bonds and pull out money. While state actions may cause some short covering by currency punters, the rupee's sudden fall rattled the stock market that was so far unruffled. Copyright © 2013 Times Internet Limited. All rights reserved. via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNGUSv0Uwc_sMVbwzeZnwsfb8SaYsw&url=http://economictimes.indiatimes.com/markets/forex/rupee-recovers-from-life-low-but-is-the-worst-over-yet/articleshow/20547524.cms

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