In order to contain exchange rate volatility, the RBI has asked oil marketing companies (OMCs) to purchase half of their dollar requirement from the State Bank of India (SBI). The Rupee fell to 57.37 against the US dollar today, recording this year`s biggest fall of 85 paise in a day, on increased demand from oil importers.
The currency has declined over 20 per cent in the past one year and traders expect the currency to weaken further to 58 against the dollar in future. Besides the RBI directive, the government has been taking supportive measures to encourage flow of foreign exchange into the country, Finance Secretary R S Gujral said. The RBI feels that oil firms seeking a single quote for their dollar requirement, instead of the present practice of floating enquiring with several public and private sector banks, would help check volatility and arrest the free-fall of the rupee.
"Government (is taking) action in terms of supportive measures for ensuring higher inflows of foreign exchange... government is conscious of (situation) and is taking appropriate action", he said, adding the exchange rate is market determined. Attributing the current decline in the value of Rupee to volatile international situation, Gujral said, the RBI is intervening to check sudden short-term movements in the domestic currency. The RBI has taken a slew of measures for encouraging exporters to bring back forex and giving freedom to banks to pay higher interest rate on NRI deposits.
Besides, the government has relaxed the portfolio investment norms to attract foreign investment into India. A decline in the foreign investment flow has impacted the current account deficit (CAD), which has touched 4 per cent of GDP in 2011-12. "Unless suitable measures are taken, if CAD increases, it will pose a burden. Consequently that needs to be tackled and government is taking adequate steps to tackle that," Gujral said.