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To Prevent Rupee Free Fall, RBI Can Sell $25 Billion At Forex: SBI Report

JAVED SAIFI | 0
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| September 19 , 2018 , 13:12 IST

According to State Bank of India’s Ecowrap research report, the Reserve Bank of India could sell at least $25 billion at forex market to support the Indian rupee against the US dollar, media reported on Tuesday.

The Indian rupee has been trading at above Rs 72 from the last couple of days with a 13 per cent depreciation in its value so far in 2018 making it a worst-performing currency in Asia.

The SBI report said, “RBI could sell at least an additional $25 billion from its reserves to support the rupee, based on our historical analysis of the RBI intervention patterns since the 1990s."

“Coupled with this, the RBI should monitor the NDF (non-deliverable forward) market more closely...oil companies must be asked to purchase all their dollar requirements directly from the RBI through a single bank as in 2013,” it added.

“As an immediate measure, the RBI can aggressively intervene and supply the dollars in the market (both spot and forward) as it has huge forex reserves,” said Soumya Kanti Ghosh Group Chief Economic Adviser, SBI.

Also Read: Rupee Will Not Go Into Free Fall, Says Former RBI Governor Raghuram Rajan

Previously on September 11, Former Reserve Bank of India Raghuram Rajan as well hoped that rupee will not go for a free fall as the central bank raising Interest rates to control inflation.

In an interview with CNBC TV18, Rajan had said, “It is very important that RBI continues to signal as it has done so far on its concern about keeping inflation on track, about raising interest rate whenever appropriate, to fulfil its inflation objective that gives investors confidence that rupee is not going to go in for free fall because ultimately inflation will be in control.”

Commenting on the diminishing rupee value Finance Minister Arun Jaitley on September 5 had said,  “RBI is certainly doing whatever is necessary. I don't think there is any need for the world's fastest-growing economy to come out with panic and knee-jerk reactions.” 

Similarly, the RBI had supported rupee from falling to 72 against the US dollar when the Indian rupee had touched close to 71.95 but later declined by pennies to Rs 71.88 per dollar.

The RBI has a number of instruments to support the Indian rupee as it can intervene in the foreign exchange markets by selling dollars. The central bank has more than $400 billion in reserves at its disposal.