RBI to take more steps if rupee slide continues: Nomura

The RBI‘s move is a bold statement on its currency strategy, but one has to wait and see if these measures really bring in the inflows amid a tide in favour of the US, say Nomura Economists. If the measures fail to rein in the rupee, the central bank may not hesitate to announce more measures to increase forex inflows as the concerns over the current account and balance of payments persist.

The measures could be in addition to the central bank’s intervention in the currency markets. ” If the pressure on the rupee continues, we could potentially see more measures being announced by the central bank,” said Sonal Varma, chief India economist, at Nomura in an interaction with ET. ” Anything that helps bring in more dollar inflows or reduces dollar outflows either on the capital account or the current account can be announced along side continued intervention”

The Reserve Bank of India on Wednesday had announced a slew of measures to enhance foreign exchange flows and rein in the value of the rupee which touched record low nearing Rs 80 to the dollar, including allowing overseas investors to buy short-term corporate debt and opening of more government securities under the fully accessible route. Besides it also announced limited period exemption from statutory preemptions for a limited period. ” This may be one of the many measures they are going to announce,” Varma said.

Nomura sees a limited impact of these measures on the external sector balance sheets. Factoring in recession concerns in United States and Euro area and an aggressive Fed fighting inflation, Nomura sees the current account deficit of 3.3 per cent of GDP and a balance of payments deficit of $ 70 billion for FY’23 with the rupee forecast at Rs 82 by September and Rs 81 by December, implying that more measures are needed to fix the external sector.

India economist Aurodeep Nandi highlighted the challenges of policy makers in the current global environment which is clouded with recessionary risks and high inflation.” Elevated inflation is eating into household balance sheets” Nandi said ” RBI is on a hiking cycle. This is going to tightness in financial conditions”

Nomura has retained India’s 2022 growth forecast at 7.2 percent, but scaled down FY’23 growth forecast from 5.4 percent to 4.7 percent. ” It seems that given the genesis of ( global) recession we are getting into, when the turning point takes place would depend a lot on when you manage to tame inflation. That is the difficult dragon to tame ” Nandi said.

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