Govt weighs NRI deposit scheme as rupee hits new low
Special scheme aimed at boosting dollar inflows; all eyes on RBI policy statement tomorrow
MUMBAI: The government is considering a special deposit scheme targeted at non-resident Indians amid fresh volatility across asset classes in India that roiled the currency, equity and bond markets on Wednesday.
The deposit scheme is aimed at boosting dollar inflows, Reuters reported, citing an unnamed finance ministry official as telling the news agency Newsrise. Economic affairs secretary Subhash Chandra Garg had said in June that if needed the government could raise funds through foreign currency non-repatriable (FCNR) deposits, sovereign bonds or other routes to increase forex reserves. The partially convertible rupee hit 73.4050 per dollar in early trade on Wednesday, a fresh all-time low.
Just when the government thought superseding the Infrastructure Leasing and Financial Services Ltd (IL&FS) board would impart a modicum of stability to markets, oil traders unleashed volatility across asset markets. Brent crude prices traded near $85 a barrel, a fouryear high.
All eyes are now on Reserve Bank of India’s (RBI) policy statement on October 5. While a rate hike has been baked into expectations, the street hopes the central bank will walk the extra mile to allay concerns regarding the health of the non-banking financial sector. Rising crude prices, with expectations of prices touching $100 per barrel, saw the Indian rupee weakening and settling past the 73-mark for the first time on Wednesday. The rupee ended at 73.34 a dollar, down 0.58% from its close of 72.91 on Monday. The currency has now depreciated more than 12% during the first nine months of 2018, with RBI limiting market intervention to only check volatility.
A strengthening dollar (aided by Federal Reserve’s hawkish stand on interest rates) and unabated foreign exchange outflows—net equity and bond sales of over $9 billion by foreign portfolio investors (FPIS) so far in 2018—have not helped the rupee’s cause. Currency markets also disregarded news of commerce minister Suresh Prabhu’s interministerial export performance review. The shock waves washed up in the equity markets, with the BSE’S 30-share Sensex shedding 550.51 points, or 1.51%, to close at 35,975.63; National Stock Exchange’s 50-share Nifty dropping 150.05 points, or 1.36%, to close at 10,858.25. This was the lowest close since July 9 for both indices. It was Sensex’s biggest single-day fall in percentage terms since March 16.
The 10-year gilt yield closed at 8.112%, up over 12 basis points from its previous close of 7.988%. Bond yields and prices move in opposite directions.
Analysts expect crude prices to appreciate in the near future, given the squeeze on Iran oil exports due to US sanctions, a continuing decline in Venezuelan production and slowing US oil output due to midstream bottlenecks.
(With inputs from Reuters)