The government's five point plan did little to calm nerves on foreign exchange street as the rupee went on a roller-coaster ride once again. All emerging market currencies were under pressure on Monday, but the rupee had a cocktail of good news with lower crude oil prices and a weaker dollar even then, there was no respite.
So what were the pressure points? There was significant appetite from importers. So at low points, the government was seen to be alert with announces when the rupee hit 72.7, bonds were also sulking despite open market purchases by the Reserve Bank of India (RBI).
Why did the government’s five point plan fail to lift sentiment? The move on foreign portfolio investors and masala bonds are being seen as helpful only when the rupee stabilises.
Some economists see the external commercial borrowings (ECB) under one year and unhedged infra loans as downright irresponsible. What the markets are awaiting is a dollar window for oil importers - some import curbs and steps to boost export. NRI bonds are seen as the least effective measure and the last in the pecking order.
Finally, the rupee has been one of the worst performing Asian currency this year, the fall in September has been much severe than most other currencies. But, if you look at the performance over the last 5 years, it has not been terrible. The Thai bhat and Korean won have outperformed the rupee.
The Chinese yuan has depreciated just slightly lesser than the rupee. But, the Malaysian ringitt, Indonesian rupiah, South African rand and Turkish lira have all seen significantly more depreciation than the rupee in the last five years.
To discuss the above developments in detail and the currency outlook, CNBC-TV18 spoke with Alvin Tan, currency strategist, Societe Generale; Vivek Rajpal, rates stategist, Nomura India and A Prassana, chief economist, ICICI Securities.
Rajpal is of a clear view that the measures announced by the government felt short of expectations. However, it appeared these could be the first step of measures and other measures would be announced.
"At the moment, currency depreciation is largely driven by global factors and not local. Hence, policy makers template is different than what it was in 2013,” Rajpal said.
Tan also agreed that global factors are the key reasons for rupee weakness, "Some of the measures announced today presumed that there was appetite by global investors for rupee assets but unfortunately at this stage animal spirits among international investors for emerging market assets, which include rupee assets are weak. “So global factors will continue to dominate the situation.”
"Moreover, India’s current situation is unhelpful. Its persistent fiscal and current account deficit and oil prices are elevated because of Iranian sanctions coming up. Combination of all this is negative for the rupee,” Tan added.
According to Prassana, the measures announced did not meet expectations.
"I was big disappointed that on the fiscal deficit part, I would have thought they should have been more equivocal. I mean committing themselves to the fiscal trajectory to say that they won’t borrow extra. I mean some really hardline statements could have come out on that," Prassana said.