Bank of America-Merrill Lynch (BofA-ML) has said the rupee is not likely to settle down until the Reserve Bank of India (RBI) is able to recoup the forex reserves, adding the country needs to issue NRI/sovereign bonds to hold Rs 60/$level.
The rupee
breached the 61-mark again on Wednesday, falling 60 paise to 61.07 against the dollar, on heavy month-end demand for the US currency amid growth concerns.
The rupee has depreciated more than 13 per cent since May this year.
According to BofA-ML, it would be difficult to sell more than $30 billion to fend off contagion and since the RBI is expected to "buy barely $7.5 billion this year, it, sooner or later, would have to raise FX through NRI or sovereign bonds."
The RBI has announced several measures since July 23 to contain the currency's fall. These have stabilised the rupee at about 60/USD.
"Still, we believe the hard reality is that expectations cannot but float up to say, Rs 62/USD, unless
the RBI replenishes its armory by issuing NRI or sovereign bonds," Indranil Sen Gupta India Economist DSP Merrill Lynch (India) said in a research note.
The note comes in the backdrop of speculation that the government and RBI could look at raising money from either NRIs or through a sovereign bond issue.
The volatility in rupee's value has been intense since the May 22 announcement by the US Federal Reserve that it may consider a withdrawal of its liquidity injecting stimulus programme in a phased manner, which led to a sell-off by investors in emerging markets like India.
On rate cuts, the report said the central bank is expected to cut policy rates by 25 basis points in October and January, even though it left all
key rates unchanged in its first quarter monetary policy review on Tuesday.
Lowering the GDP growth projection for the current fiscal to 5.5 per cent from 5.7 per cent, RBI had said the external sector is the "biggest threat" to economic stability and asked the government to take urgent steps to rein in the high current account deficit.
With inputs from PTI
Special 
