'Dollar selling, bond issue can arrest rupee's fall'

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SME Times News Bureau | 22 May, 2012
Direct selling of US dollars to oil companies and issuance of attractive bonds can be helpful in arresting the rupee's sharp fall, viewed exporters' body FIEO on Monday.

"The twin measures can be helpful in stemming the volatility," FIEO President M Rafeeque Ahmed said, adding that regional equities and currencies took a hit after Moody's Thursday downgraded 16 Spanish banks.

Poor U.S. manufacturing data exacerbated worries over the global economy as a result the USD pushed higher through the morning session and was quoted at a fresh record high of 54.90 rupees, he added.

The Indian rupee slipped to a record low of 55.05 against USD in the intra-day trade Monday

The FIEO chief stated that RBI has been making efforts to stem excess volatility through de-regulating PCFC , increasing interest rates on NRE deposits, restricting forex retention beyond 50% in the EEFC, but such measures would not lead to intended results as the quantum of US dollars that would come
through these measures would be miniscule as compared to the overall requirements.

In the case of oil companies for example average daily demand for dollars from state-run oil refiners is at around $400-$500 million, with demand peaking towards the end of the month when they are
supposed to make payments, Ahmed elaborated.

Apart from the month-end bill payment requirements of oil importing companies, he added, dollar demand is also coming from corporate bodies as they redeem maturing External Commercial Borrowings (ECBs) and Foreign Currency Convertible Bonds (FCCBs).

In such scenario, direct selling of USD to oil companies will ensure the demand of this sector in the market will be eliminated ensuring better balance between supply and demand of dollar resulting in arrest of weakening Rupee, he said.

"This will help in containing deficit and inflation as a Rupee increase in US dollar value add to Rs 9200 crore annual burden on oil companies" he added.

"We should also aim to attract dollar, Ahmed, by bringing attractive Bonds on the pattern of Millennium Bonds or Resurgent India Bonds so that while we augment the supply of USD through this mechanism," he viewed.

The FIEO chief recalled that in 2008 and 2009 when rupee showed similar volatility oil bonds were issued by oil companies.