MUMBAI: The Reserve Bank of India (RBI) has announced fresh measures to reduce volatility in the forex market and aid the rupee which hit a record low to the dollar this week.
The RBI — in a measure which would suck out cash from the financial system — said it will auction 220 billion rupees ($3.6 billion) worth of government cash management bills once a week every Monday, in a statement.
The RBI said these measures would help in “effective liquidity management,” but it did not specify the duration of the sale.
The rupee on Thursday posted its biggest single-day gain in two weeks, closing at 60.88 to the dollar from its record closing low of 61.30 Wednesday, on optimism that the government and the RBI would announce steps to reduce deficits and boost foreign fund inflows.
The rupee has been battered in recent months, shedding as much as 12.83 percent in 2013, amid slackening domestic growth, rising overseas fund outflows, weak exports and a high current account deficit.
The rupee, one of Asia’s worst-performing currencies this year, hit a lifetime low of 61.80 to the dollar on Tuesday, over concerns that foreign capital could flow back to the US as the American economy picks up.
Demand for the dollar has been stoked by speculation of a scaling back of US stimulus as the world’s largest economy recovers, analysts said.
The depreciating rupee causes inflation by raising the cost of everything India imports from crude oil to chemicals and pulses.
The RBI recently announced a range of measures to bolster the rupee, including raising short-term interest rates and lowering the amount a bank can borrow or lend under its daily liquidity limit.
RBI announces steps to reduce forex volatility
