The Reserve Bank has to be active in increasing foreign exchange reserves

Mumbai: Economists are opining that the Reserve Bank should implement the earlier successful measures to increase the forex reserves in the country. On the one hand, the decrease in forex reserves and on the other, the depreciation of the rupee against the dollar has become a matter of concern for the Reserve Bank, and there is a need to take steps to attract non-resident Indians living abroad to invest in India.

At the end of the three-day meeting of the Reserve Bank's Monetary Policy Committee starting tomorrow, the measures related to increasing the forex reserve are to be announced.

In the current year, the rupee has lost more than nine percent against the dollar. The Reserve Bank has been forced to sell dollars to prevent the depreciation of the rupee against the dollar. From the all-time high of $642 billion last year, the country's forex reserves have now fallen to $545 billion.

HDFC Bank has said in a note that the Reserve Bank has to ensure that the decline in the rupee does not affect the country's fundamentals. The central bank may need to think of ways to boost its forex reserves, which are likely to shrink to around Dover 500 billion in the coming months. More capital is needed at this stage to stabilize the rupee and increase reserves.

A depreciation in the rupee may help narrow the trade deficit, but pressure on the capital account will shake investor confidence, it also noted.

More inflows are currently required to stabilize the rupee and increase forex reserves.

Earlier, the Reserve Bank had introduced schemes such as curbing capital outflows, easing norms for external commercial borrowings and non-resident deposits which could be useful in stemming the current rupee depreciation, Nomura said.

Another analyst said that the steps taken by the Reserve Bank during the pressure on the rupee in 2013 are necessary now.

In July, the Reserve Bank allowed banks to raise foreign currency non-resident deposits at higher rates and foreign investors to buy short-term debt instruments, but these measures appear to be insufficient.

Non-resident Indians are sensitive to India's fundamentals, so they should be offered attractive rates against dollar flows, he opined.