A customer counts money inside a currency exchange shop in Kolkata.
NEW DELHI/MUMBAI: The Indian rupee rebounded yesterday from a record low as the central bank sold dollars to oil companies, while policy makers scrambled for more lasting solutions to what some investors are describing as a crisis.
The rupee strengthened to 66.85 per dollar, up sharply from a record low of 68.85 per dollar on Wednesday when the currency posted its biggest percentage fall in 18 years.
Among the steps debated by policy makers were monetising the country’s stash of gold and lowering fuel consumption to reduce import demand.
Prime Minister Manmohan Singh also told parliament he was likely to make a statement on the economy today when asked by lawmakers what steps were being considered on the rupee.
“I cannot deny that the country is faced with a difficult situation,” Singh said in brief remarks to the upper house of parliament yesterday. “There are some domestic factors. There are also some international factors arising out of change in US monetary stance,” he said, noting that rising tensions in Syria could drive up oil prices.
In the absence of major government action, the Reserve Bank of India, the central bank, has been the main defender of the currency, with a series of extraordinary measures including draining cash and curbing speculative trading.
Outgoing RBI Governor Duvvuri Subbarao defended the bank’s action last month, calling it necessary to stabilise markets. But he said longer-term solutions, such as narrowing the country’s current account deficit, lay with the government. “The only lasting solution to our external sector problem is to reduce the CAD (current account deficit) to its sustainable level,” Subbarao told bank executives in Mumbai.
The RBI said late on Wednesday it was providing a special window with immediate effect to sell dollars to Indian Oil Corp Ltd, Hindustan Petroleum Corp, and Bharat Petroleum Corp Ltd.
The decision is aimed at removing a major source of dollar demand from the spot market.
Indian Trade Minister Anand Sharma said the RBI could monetise its gold reserves to reduce import demand for the precious metal but emphasised it was for the bank to decide. Reuters