Steps taken by RBI about Nose diving Rupee

Huge demand for dollars due to rising imports, and shrinking inflows from foreign investors due to sluggish growth, high inflation, widening current account and fiscal deficits and policy stalemate are key factors for the slide in the rupee.

To slow down the depreciating rupee, the RBI had in the recently taken a couple of measures like raising interest rate on NRI deposits in foreign currency to promote inflows, discouraging outflow of foreign currency by instructing exporters to sell 50% of their retained foreign exchange earnings.

Also in the past, RBI had said forward contracts once cancelled cannot be re-booked and that the forward market should only be used for genuine hedges. This drove speculators out of the currency market. RBI also curbed banks’ open exposure to the currency market and set limits for them.

What RBI can do further!

Impose a cash Margin (10-25%) on forwards. This will reduce speculation to a significant extent and will give access to market for actual trade.

RBI could directly propose oil companies to buy dollars directly from the central bank or it could purchase oil bonds.

Reduce the limit of dollars for people going abroad.

Further tariff or restriction on gold import, So that the greenback stays and is not being traded in huge volumes.

Rebates to support more exports, this in turn will improve dollar liquidity.