India’s rupee measures fail to cheer market

Tuesday, 26 June 2012 00:37 - - {{hitsCtrl.values.hits}}

MUMBAI/NEW DELHI (Reuters): India announced steps on Monday to bolster the embattled rupee, including a $5 billion increase in the foreign investment cap in government bonds, but disappointed markets hoping for bolder action to prop up a currency that hit a record low on Friday.

After the central bank raised the bond limit to $20 billion and announced other relatively minor steps, the rupee trimmed gains built up earlier in the day on hopes for more aggressive moves. Stocks tumbled.

“Well, not the ‘shock and awe’ the market was looking for but we shall see what else gets announced. Not surprised to see dollar/rupee higher,” said Jonathan Cavenagh, senior forex strategist at Westpac in Singapore.

“Until they address longer-term structural issues around capital flows and competition in the domestic retail sector which can help bring down inflation pressures, I think markets will be left disappointed,” he said.

The steps were the latest by Indian policymakers trying to combat a loss of confidence in the economy, which slumped in the March quarter to its worst growth in nine years.

The rupee rose as high as 56.37 per dollar before the measures were announced but ended domestic trading at 57.01/02, edging back towards Friday’s record low of 57.32.