RBI may take steps to arrest rupee weakness

Some market analysts expect Reserve Bank of India (RBI) to take steps to arrest further depreciation of rupee against the dollar.

In order to meet the demand for dollar to import crude oil by oil marketing companies (OMCs), RBI may look at opening a special window from where these firms could buy dollars. A large part of demand for dollar comes from OMCs and if this demand is eliminated from the market, depreciation of rupee could be arrested.

Further, the central bank may restrict discretionary non-trade payments overseas, or money retained outside may be ordered back into the country, some market participants feel.

The rupee is the worst-performing Asian currency as foreign funds pulled out $5.4 billion from Indian debt in June.

The government and the central bank have been trying to curb demand for gold, one of the main causes of aggravating external deficit, by imposing stringent cash conditions on importing the metal and also raising the import duty on it.

Oil companies require an average of $300 million dollar per day. And the demand for dollars will only accelerate with nearly $172 billion of loan repayments coming up in the next one year, media reports indicate.

Some analysts feel that RBI may have to raise interest rates to attract foreign capital flows.