Fresh government remedies fail to stem Indian rupee's slide

Mon Aug 12, 2013 9:16am EDT
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By Rajesh Kumar Singh and Swati Bhat

NEW DELHI/MUMBAI (Reuters) - The Indian rupee weakened towards a record low on Monday after Finance Minister P. Chidambaram unveiled proposals to narrow the current account deficit in a bid to defend the currency as concerns about the slowing economy deepened.

In parliament on Monday, Chidambaram vowed to contain the current account deficit at $70 billion for the fiscal year ending in March, or an estimated 3.7 percent of gross domestic product (GDP).

That would be well below the record high 4.8 percent seen in the previous fiscal year.

Chidambaram proposed to meet the target with a slew of anticipated measures, such as easing rules on obtaining loans abroad and raising deposits from Indians abroad.

Although a lack of specifics had initially disappointed investors - sending the rupee to 61.30 per dollar and not far from a record low of 61.80 hit last week - Chidambaram followed up with details later in the day that helped soothe some of the concerns.

He said the combined proposals unveiled on Monday would bring in a total of $11 billion this fiscal year, pushing up his estimate of capital inflows for the year to $75 billion.

The rupee's defense has so far hinged on the Reserve Bank of India's risky gambit of draining cash and shoring up short-term interest rates, but both measures have failed to prop up the currency, making government action crucial in investors' eyes.

Yet Manmohan Singh's minority coalition is facing political gridlock ahead of elections due by next year, with the current session of parliament that started earlier this month rocked by tensions with Pakistan across the disputed border of Kashmir and clashes in the Jammu region.   Continued...

A security guard stands in the lobby of the Reserve Bank of India (RBI) headquarters in Mumbai, in this July 30, 2013 file photo. REUTERS/Vivek Prakash/Files