RBI steps to boost rupee may create more alarm in market: Mythili Bhusnurmath

“I am not sure whether the upside of these moves will be better than the downside,” says Mythili Bhusnurmath, Consulting Editor, ET Now.

What is your reaction to the measures that have been announced by the RBI to boost forex inflows ,to shore up rupee? Do you think this is enough to arrest the slide that you have seen in the rupee?
It certainly will not be enough. At the same time when the RBI does this it seems to give lie to its statement that we have enough forex reserves because to be honest, our forex reserves are pretty substantial and even though in the recent weeks, it has seen a dip from well over $600 billion to something in the range of $590 billion, there really is not any reason to worry at the moment.

We have seen substantial forex outflows as the rupee has weakened considerably and we are perilously close to 80 rupees to a dollar. The latest RBI move seems to be a bit of a knee jerk reaction and might cause more panic in the market because though these measures like – removing the CRR on incremental NRI deposits and increasing the interest rate on NRI deposits, removing the strictures on foreign currency borrowing, seem a little hasty and not really necessary at this point unless the Reserve Bank fears that the rupee is going to weaken much more and the forex reserves will decrease considerably.

So I am not sure these will help, maybe they could create more alarm in the market. So I am not sure whether the upside will be better than the downside. Clearly it is an attempt to stop outflows but whether this will stem the decline or whether it will create further havoc remains to be seen.

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