GoI, RBI make coordinated policy moves to fight rupee drop, cash crunch

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MUMBAI: India upped the ante in its efforts to restore investor confidence, with India’s central bank taking measures to ease liquidity for lenders a day after government of India raised import tariffs to support the battered rupee.
The Reserve Bank of India allowed banks to dip further into statutory liquidity reserves to help them meet their liquidity coverage ratio needs, a step that would boost cash available for lending. On Wednesday, GoI raised import taxes on $12 billion of goods as it seeks to narrow the current-account deficit from a five-year high.
The coordinated policy moves come as Asia’s third-largest economy faces a barrage of bad news, from elevated oil prices and a tumbling rupee to the debt crisis at a lender and a cash crunch in the banking system. Foreigners have pulled $8.6 billion from local shares and debt this year, adding to the weakness in the currency that’s already Asia’s worst performer. The measures may not go far in lifting the despondency that has settled over the markets.
“The measures announced are positive on the margin in the short term but not really game-changing stuff to reverse the trajectory of the rupee and the financial markets,” said Ashish Vaidya, head of trading at DBS Bank Ltd. in Mumbai. The benchmark S&P BSE Sensex gave up early gains and traded down 0.1 per cent at 12:19 pm in Mumbai, set to round out its worst month since February 2016. The yield on the benchmark 10-year bond was little changed at 8.07 per cent, after declining five basis points on Wednesday. The rupee was marginally changed at 72.64 per dollar.
Recent measures to shore up the currency have underwhelmed and pressure is building on the authorities to do more to curb the yawning trade- and current-account deficits. The move to raise import tariffs on 19 items — from air-conditioners to jet fuel — follows similar steps taken by Indonesia, which also runs a current-account gap. The Southeast Asian country has delayed import-heavy infrastructure projects and boosted taxes on imports of luxury goods.