India’s ability to push reforms will give direction to rupee: Official

The country’s ability to press forward with policy changes will set the course for the rupee and any slackening on this count will send foreign investors to other destinations, a senior government official said, signaling concerns over the recent, sudden depreciation of the currency against the dollar.

“India needs to demonstrate its ability to reform, which will set the direction for the rupee,” said a senior government official.

The government, which is attempting to push through a key reform legislation—the constitutional amendment bill for the implementation of a goods and services tax ( GST) in the current session of the Parliament–is keen to send a loud and clear signal to foreign investors that policy changes top its agenda. To give comfort to foreign investors on taxation, finance minister Arun Jaitley on Thursday set up a panel headed by AP Shah, chairman of the Law Commission that will look at the levy of minimum alternate tax on foreign portfolio investors. The issue has rattled the stock market, leading to a pullout by foreign investors that has hurt the rupee.

The official said it appeared that foreign investors were also diversifying their portfolio as government companies make public offers in other emerging market economies such as China. Besides, the uncertain monsoon situation and subdued corporate earnings were also having an impact on overall market sentiment.

The move to set up a panel cheered foreign investors. The benchmark BSE Sensex surged 506 points to 27,105.39 on the government’s move, logging its biggest rise in over a month.

The rupee also snapped its five-session losing streak and gained 29 paise to 63.94 on Friday, recovering from a 20-month low against the American currency. The rupee resumed higher at 64.13 as against the last closing level of 64.23 at the interbank foreign exchange market and firmed up further to a day’s high of 63.90 per dollar before concluding at 63.94.

On Thursday, the rupee had dropped 69 paise or 1.09% to a 20-month of 64.23 per dollar. The rupee had also dropped by 108 paise or 1.71% in the preceding five days.

Source: Economic Times

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