PM MODI TO RE­VIEW HEALTH OF ECON­OMY

Free-fall of ru­pee and re­lent­less hike in oil prices top agenda of Satur­day meet­ing with fi­nance min­is­ter and RBI gov­erner

Financial Chronicle - - FRONT PAGE - AN­JANA DAS

PRIME min­is­ter Naren­dra Modi has called a high-level emer­gency meet­ing on Satur­day to re­view the health of the econ­omy in view of free-fall­ing ru­pee and surg­ing oil prices which have come in for se­vere crit­i­cism from many quar­ters. The meet­ing will ex­plore in­ter­ven­tion mea­sures to tame the slide in ru­pee’s ex­change value which touched threat­ened to breach 73 a dol­lar on Wed­nes­day. Fi­nance min­is­ter Arun Jait­ley and Re­serve Bank gover­nor Ur­jit Pa­tel and se­nior gov­ern­ment of­fi­cials will at­tend the meet­ing.

Is­su­ing NRI bonds, a hike in in­ter­est rates by the cen­tral bank and greater role for the RBI in forex mar­ket to sup­port the do­mes­tic cur­rency are some of the top items on the agenda of the all-im­por­tant meet­ing.

The prime min­is­ter wants the ru­pee to level at its own value which is in­di­cated at 70 a dol­lar, ac­cord­ing to sources. Is­su­ing NRI bonds, a hike in in­ter­est rates by the cen­tral bank and greater role for the RBI in forex mar­ket to sup­port the do­mes­tic cur­rency are some of the top sub­jects on the agenda

The need of NRI bond, its size and tim­ing of its is­suance are ex­pected come up for de­lib­er­a­tions.

Of­fi­cial sources said the prime min­is­ter wants to the lo­cal cur­rency to level at its own value which is in­di­cated at Rs 70 a dol­lar. Three mea­sures that hold key to the meet­ing will be pre­sented by the Depart­ment of Eco­nomic Af­fairs along side in­puts and sug­ges­tions from the Re­serve Bank and the Depart­ment of Fi­nan­cial Ser­vices.

The gov­ern­ment will seek the RBI views on the need and tim­ing of in­tro­duc­ing NRI de­posit or bonds. It will seek the cen­tral bank’s opin­ion on whether NRI bonds could launched to­wards the third quar­ter. The size of is­suance, if gov­ern­ment de­cides to go for it, could be be­tween $35-40 bil­lion. In 2013, the UPA gov­ern­ment had is­sued a $34 bil­lion dol­lar NRI bond to halt the ru­pee’s slide. Sub­has Chan­dra Garg, sec­re­tary, depart­ment of eco­nomic af­fairs, told FC, “There will be sev­eral mea­sures to check ru­pee de­pre­ci­a­tion. The ru­pee will not be al­lowed to de­pre­ci­ate to un­jus­ti­fied lev­els.”

The meet­ing would also dis­cuss the oil price hike in the coun­try fol­low­ing surge in crude prices glob­ally. A se­nior gov­ern­ment of­fi­cial said the short­age of oil cre­ated by OPEC is 'not real' He also said the gov­ern­ment is com­mit­ted to meet­ing the fis­cal deficit tar­get.

It is im­por­tant that In­dia does not end up with twin deficits, there­fore, the gov­ern­ment will hold back on ex­cise duty cut for now. Pres­sure is al­ready mount­ing on the RBI to take stronger ac­tions to stem the cur­rency's slide. The cen­tral bank has al­ready raised in­ter­est rates twice since June and has de­pleted bil­lions of dol­lars to bol­ster the cur­rency, but with lit­tle suc­cess. Trade deficit for Au­gust stood at $17.40 bil­lion, down from $18.02 bil­lion a month ago. The ru­pee has been un­der stress on ac­count of widen­ing cur­rent ac­count deficit and im­pli­ca­tions of wors­en­ing trade war be­tween the US and China. The CAD stood at $15.8 bil­lion or 2.4 per cent of the GDP in the first quar­ter of the cur­rent fis­cal.

Moody's has fore­cast that In­dia's CAD will touch 2.5 per cent of the GDP in FY19 on the back of ris­ing crude oil prices which has fur­ther been ac­cen­tu­ated by fall­ing ru­pee. The RBI in­ter­venes reg­u­larly in the for­eign ex­change mar­ket to smooth volatil­ity. The in­ter­ven­tion has taken a toll on forex re­serves. From a record $426 bil­lion in mid-April, re­serves have fallen to $400 bil­lion in Au­gust — enough to cover eight months of im­ports. The RBI which tar­gets in­fla­tion con­trol with rais­ing rates will now try to check the ru­pee’s de­cline with higher rates, said sources. The RBI raised its bench­mark rate to a two-year high of 6.5 per cent last month and may fol­low through with more pol­icy tight­en­ing.

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