Rupee depreciation

What is causing rupee depreciation?

•          Currency depreciation both on account of global and domestic factors.

•          External Factors: Eurozone uncertainty, Concern  on US stopping fiscal stimulus

•            Domestic factors - current account

-          Demand pressures at home resulting in higher CAD

-          Oil - inelastic demand given absence of pass through

-          Higher imports of gold - as an investment?

•            Domestic factors - capital account

-          Slow down in capital flows since April 2012  (FDI, FII, ECB)

What has RBI done

•          Intervention consistent with our policy

•          Increase in FII limits in G-Sec and Corporate Debt increased by US$ 5 billion each to US$ 15 billion and US$ 20 billion, respectively

•          Increase in all-in-cost ceiling for ECBs

•          Deregulation of interest rates on NRE and NRO accounts in December 2011

•          Increase in ceiling rate on FCNR(B) deposits

•          Deregulation of ceiling rate on export credit

•          ECB raised for Rupee Outlay to be brought in immediately

•          Banned proprietary trading by banks in FX options and futures ( to curb speculation)

•          Asked oil companies to deal with only 1 bank for $ buying needs ( to curb speculation)