Action to stem Re fall likely from Wednesday: Govt sources

Excerpts from What's Hot on CNBC-TV18 Watch the full show »

The rupee on Tuesday plunged to a fresh an all-time low of 52.70/$ . Government sources indicate that two-three steps may be taken in the next few days to arrest the rupee's fall, reports CNBC-TV18's economic policy editor Siddharth Zarabi.

The government is concerned about the way rupee has been falling but, this is something that is best left to the Reserve Bank of India (RBI) to address.

According to sources, RBI will now step in aggressively to stem this fall and two-three steps are being contemplated to stem this fall in rupee at this point in time.

Step 1

One of the steps is with regard to asking banks to restrict their long positions on the dollar. Banks are allowed a certain percentage (up to 3%) of their long positions on the dollar of the total customer demand.

Why is this step necessary at this stage?

Our analysts and observers of the rupee believe that once this restriction is put in place for all the banks, it could allow the rupee to move back and come to around Rs 51 level.

The government has in its mind a level of the rupee which it feels can be defended. The key question here is that government managers were not very sure till some time back as to what would be the level at which the rupee could be defended. That ability is not limitless with the RBI.

Step 2

CNBC-TV18 earlier reported that it is oil marketing companies demand that they should be allowed a direct window to purchase dollars from the RBI directly. The numbers on that count is not as important as is the signaling effect of such a facility being introduced.

Sources says that step is likely to be announced or facilitated very soon. Meanwhile, Oil Ministry sources say that have not heard from RBI as far as direct purchase of dollars is concerned.

What would that do?

That would send out a signal, curb some of the volatility that oil marketing companies face. It would also stem some of the higher demand that we are seeing for dollar in the market.

There might be one more step to arrest the fall in rupee. There seems to have been an informal exchange of ideas with the RBI and these steps should pan out beginning from Wednesday itself.

Also watch the accompanying video.