Dollar
shortage to continue in India & rupee fell to close at 40.52/53
Rupee hits lowest level since October
2001
New Delhi, March 08, 2008
Ashok Malhotra
Indian Foreign exchange dealers estimate that Indian banks are
facing a shortfall of about $200 million every day for the past
month. Now it is acute shortage of dollars in the market. The banks
have no dollars to lend to corporations. There are some reasons
for shortage of dollars in India:
- The Reserve Bank of India (RBI) and the finance ministry’s
policy of curbing dollar inflows for the systemic shortages. The
situation will correct only when inflows recover sufficiently
or the RBI supplies dollars.
- The situation will worsen in March when the rupee liquidity
will tighten on account of advance tax outflows.
- NRI deposits have come down when banks announced low interest
for NRI deposits
- Another reason is that foreign institutional investors (FIIs)
are turning net sellers in the Indian equities. For the past 2-3
months, FIIs have net sold $3.3 billion worth of equities. In
2007, they had bought a record $17.5 billion worth of Indian equities
net of sales.
- Sharp rise in oil prices increased the demand for dollars and
it is expected the dollar may gain more ground
On Friday, the rupee fell to its lowest in nearly six months close
at 40.52/53 to a dollar. NRIs and foreigners may sell shares and
repatriate funds.
India imposed in August 2007 curbs on companies seeking to borrow
from overseas to slow capital inflows that pushed the rupee to a
nine-year high.
One dealer said, India's benchmark share index dropped 3.4 per
cent on Friday, to post its lowest close in nearly six months, in
line with a bearish trend in stock markets across Asia. The higher
trend in the dollar may help Indian exporters in making room for
their products in the international market due to the cheaper rupee
as compared to the other competitors.
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