India to stem slump in rupee with note auction

PUBLISHED : Saturday, 10 August, 2013, 12:00am
UPDATED : Saturday, 10 August, 2013, 4:31am

India plans to sell 220 billion rupees (HK$27.9 billion) of cash management bills each week, stepping up efforts to stem the rupee's unprecedented plunge by curbing supply of the currency.

The Reserve Bank of India would auction the notes every Monday, it said on Thursday. The step followed a review of the impact of earlier measures to steady the currency and was for "effective liquidity management", it said.

The rupee strengthened in offshore trading late on Thursday and Indian stock-index futures climbed in Singapore yesterday.

The currency fell to a record low of 61.805 per US dollar on August 6 and three-month historical volatility rose to 11.94 per cent on Thursday, the highest level since 2009, even after the monetary authority last month restricted banks' access to cash, curbed trading in currency derivatives and raised two interest rates. The rupee has slumped 12 per cent against the dollar in the past six months.

"Such measures are not enough," Priyanka Kishore, a strategist at Standard Chartered in London, wrote in a research note. The "market is awaiting a comprehensive package" for reducing the current-account deficit by the end of the week and if those expectations were not met, the pressure on the rupee might persist, she wrote.

The sale of cash management bills is in addition to about 150 billion rupees of bonds auctioned each Friday as part of the government's budgeted borrowing programme.

The Finance Ministry also issues about 120 billion rupees of treasury bills every Wednesday.