More steps to halt INR depreciation - Angel Broking

The Finance Minister has committed to reducing the current account deficit at USD70bn or 3.7% of GDP for FY2014. In addition, to attract foreign inflows in the economy the FM has announced that public sector financial institutions would be allowed to raise quasi-sovereign bonds to finance long-term infrastructure needs. Also, PSU oil companies would be allowed to raise funds through External Commercial Borrowings (ECBs) and trade finance. PFC, IIFCL and IRFC are expected to raise money to the tune of USD4bn through quasi sovereign bonds.

The RBI on its part has taken a number of steps to tackle liquidity and thereby raised yields on the short end of the curve. This is expected to curb speculative attack on the currency and attract FII investors to the debt market.

We believe that these new steps announced are likely to be sentimentally positive for the INR. The current account deficit is likely to moderate on account of lower gold imports and on account of the depreciation, import substitution of cheaper manufactured goods from abroad may also ensue.

Source : Equity Bulls

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