Mumbai: India’s finance minister P. Chidambaram met with top bankers on Saturday to discuss ways to boost the weak rupee and bring in more foreign capital to bridge a trade gap that has put pressure on the currency.
Chidambaram was accompanied by top officials at the meeting in India’s financial hub of Mumbai with representatives of leading private and public sector banks.
As the US economy picks up, the Federal Reserve is expected to start winding down its bond-buying stimulus scheme which has helped fuel an investment splurge in Asia’s emerging markets.
“The meeting was mainly to seek ideas and suggestions on what can be done about capital inflows. It was a very good and positive meeting,” ICICI Bank’s chief executive Chanda Kochhar told reporters.
India’s large current account deficit - the broadest measure of trade - must be funded with foreign capital, and the country is seen as one of the most vulnerable among emerging market nations whose currencies are under pressure globally.
India’s rupee recovered from historic lows against the dollar Friday, marking its biggest single-day gain in nearly a year, but analysts warned the currency’s overall trend was still bearish.
The rupee, one of Asia’s worst performing currencies, bounced back 2.09 percent - its biggest one-day gain since September 2012 - to end trade at 63.20 Friday, up from its record closing low of 64.55 the previous day.
The Indian unit, which had hit a new lifetime intraday low of 65.56 Thursday, was boosted Friday by comments by Chidambaram and the Reserve Bank of India.
Chidambaram said the currency panic was “unwarranted” and the rupee had “overshot” its “appropriate level”.
He added there was no plan to impose more capital controls on top of ones announced this month, and that reviving growth, which hit a decade low of five percent last year, would be the government’s focus.
The central bank governor Duvvuri Subbarao, meanwhile, dismissed investor fears India is hurtling towards a balance of payments crisis similar to one in 1991.
Ten-year government bonds also posted their biggest weekly gain in four-and-a-half-years, of 62 paise ($0.01) to 8.26 percent, while shares rebounded by 1.13 percent to 18,519.44 points.
But analysts said the relief might be only temporary and the rupee could soften further, with Deutsche Bank suggesting it could fall to 70 to the dollar.
“There is a slight change in sentiment after the finance minister’s statements but the overall trend is still bearish,” said Param Sarma, chief executive at consultancy NSP Forex.