Fresh Government remedies fail to stem rupee’s slide

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All About Fresh Government remedies

The rupee weakened on a record low on Monday after Finance Minister P. Chidambaram unveiled new measures to narrow the Current Account Deficit(CAD) in order to defend the currency as concerns about the slowing economy deepened. On Monday in the parliament session, Chidambaram vowed to contain the current account deficit at $70 billion for the fiscal year ending in March, and an estimated 3.7 percent of Gross Domestic Product (GDP). He proposed to meet the target with a slay of projected measures, such as easing rules for obtaining loans abroad and increasing deposits from Indians abroad. Although a lack of essentials in the beginning had disappointed investors, sending the rupee to 61.30 per dollar and not distant from a record low of 61.80 hit last week – Chidambaram followed up with details later in the parliament session that helped some of the major concerns.

He said the combined proposals unveiled on Monday would bring in a total of $11 billion this fiscal year, pushing up his approximate of capital inflows for the year to $75 billion. The rupee’s defence has so far hinged on the Reserve Bank of India’s unsafe strategy of draining cash and shoring up short-term interest rates, but both measures have failed to sustain up the currency, making government action crucial in investors’ eyes. Chidambaram said he want to make it clear that while we have a problem, there is no need for panic, referring to the current account deficit (CAD).

Fresh Government remedies fail to stem rupee's slide

As widely estimated, Chidambaram said India would seek to reduce imports of silver, Gold and “non-essential” imports, while also cutting demand for oil. He also anticipated raising funds abroad to enhance capital inflows, allowing public sector financial firms to trade debt to finance long-term infrastructure projects, raising money through deposits targeted at Indian citizens abroad. Chidambaram put some numbers to his proposals as some analysts had expressed agnosticism about whether India would be able to hold the deficit to the level pledged on Monday. Bold and effective measures are required, said Rupa Rege Nitsure, chief economist at Bank of Baroda.

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