MUMBAI, Sept 27 (Reuters) -
The Reserve Bank of India may have to resort to tried and
tested measures to shore up its foreign exchange reserves,
including encouraging non-resident Indians to deposit more
funds, as it looks to stabilise a steadily declining rupee,
The Indian currency has weakened 9.5% so far
this year, with the central bank defending the rupee via dollar
sales that depleted its forex reserves to $545 billion from the
peak $642 billion a year ago.
"The central bank should intervene to ensure that a falling
currency does not eclipse India's fundamentals," Abheek Barua,
chief economist at HDFC Bank, wrote in a note this week.
While there might be some benefits of a depreciated currency
in closing the trade gap, the damage to the capital account in
terms of reduced confidence of investors will outweigh it, he
According to Barua, the central bank may need to think of
ways to bulk up its forex reserves, should the pool shrink to
near $500 billion in the coming months.
"More capital is needed at this stage to stabilise the rupee
and enable the RBI to replenish its reserves chest," he said.
Japanese investment house Nomura said in a note that Asian
central banks and governments have in the past relied on certain
measures to shore up foreign exchange reserves and may need to
reconsider these as a second line of defence.
In India's case, the RBI had previously tried to halt
the pace of capital outflows, ease norms around external
commercial borrowings and introduce non-resident deposit
schemes, among others, which could be useful to help with
currency depreciation pressures, Nomura added.
In July, the RBI had allowed banks to raise foreign currency
non-resident deposits at higher costs and permitted foreign
investors to buy shorter term local debt as a way to encourage
Those measures have only helped marginally, analysts said.
The central bank should explore other options such as those
in 2013 when the rupee came under pressure due to the U.S.
Federal Reserve announcing plans to taper bond purchases.
It may be time to think yet again of the taper tantrum
playbook, subsidize forwards and get lumpy non-resident deposits
in, Barua said.
"NRIs are sensitive to India's robust fundamentals and could
be persuaded to deposit their dollars ... at attractive rates,"
(Reporting by Anushka Trivedi in Mumbai)