Will rupee nearing 65 prompt UPA to focus on reforms?

There is no stopping the rupee’s decline to 65 against the dollar and it is imminent. The rupee today opened at record low of 63.69 and steadily declined further to cross 64. The unit has since pulled back to 63.75 at present.

The pace at which the currency is falling is scary. The 63 level never seemed as near, but it happened in the last 15 minutes of trade yesterday. The 64 level happened in the first 25 minutes of trade today.

“This pressure has been there for quite sometime and I do not see the current policies affecting that pressure,” he said. He expects the fall to continue

“The only thing that stands between the rupee and a further fall is the Reserve Bank of India (RBI) selling dollars from its reserves. Given the quality of reserves, I doubt whether they would be in a mood to do any intervention on significant basis,” he told the channel.

JP Morgan, which today downgraded India to neutral, said India will underperform if the rupee continues to decline.

Adrain Mowat of JP Morgan today told CNBC TV18 that the brokerage house is still unclear of what are the government’s plans to finance the CAD.

He expects the US Fed to start tapering off its accommodative policy by September, which will put more pressure on the rupee.

An Economic Times poll has said the 65 level is likely in three months, when the retail inflation will also remain at an elevated level of 9 percent. In short, the gloom will only spread.

The government is, however, rejecting theories drawing similarities between the present situation and the 1991 crisis. The market is overdoing its reaction, Department of Economic Affairs Secretary toldCNBC-TV18 today.

This may be true to a small extent. Moody’s Investor Services has reiterated its stable outlook on sovereign rating saying the country “has adequate reserves for near-term BoP payments”.

Moreover, the government has also swung into action and taken steps to attract foreign direct investment.

But none of these steps are going to help the economy much in the near term. One can’t expect a torrential flow of dollars only because the government has opened up a few sectors.