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Rupee: What will stop the slide? - Views on News from Equitymaster
 
 
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  • Aug 12, 2000

    Rupee: What will stop the slide?

    The rupee continued its downward trend and touched a life time low of Rs 46.07, before recovering to close at Rs 45.8. The gain in the rupee was in reaction to RBIís move to ask corporates to bring back external commercial borrowings (ECB) and ADR proceeds.

    RBI is reviewing the Export Earner Foreign Currency (EEFC) scheme to ensure more dollar remittances from abroad. The current reserves of $2 bn in the EEFC account is sizable, which will help to stand off further fall in the rupee.

    As per the scheme exporters are allowed to park 50%-70% of their foreign exchange earnings abroad for a period of 180 days under the Foreign Exchange Regulation Act. This is to help them in meeting their day to day overseas expenditure. However some exporters are parking their funds beyond this limit. RBI is expected to ask for repatriation of the proceeds of ADRs and ECBs from abroad if they have been parked there for a long time.

    Since several corporates have raised over a billion dollars through the ADR route, repatriation of the proceeds could keep the rupee in a steady range, which has lost over 5% during the current financial year.

    The other positive news for the rupee is that during the month of August Foreign Institutional Investors have turned to net buyers with their current net purchases of Rs 1.4 bn. They were net sellers in the equity market to the tune of Rs 14.1 bn in the month of July. Further RBI has cleared foreign direct investment (FDI) worth Rs 9.5 bn. With the increasing FII investment although at a slower pace, clearance of FDI and repatriation of proceeds of ADRs will lead to an increase in the supply of dollars and one can expect it to bring some relief to the falling rupee.

     

     

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