MUMBAI Reuters - The may need to find ways to replenish itself, including encouraging non-resident Indians to deposit more funds, as it looks to stabilise a depreciating rupee, Chief Economist Abheek Barua said.
The Indian currency has weakened 9.5% this year, with the central bank defending the rupee via dollar sales that have depleted its forex reserves to $545 billion from the peak of $642 billion a year ago.
Barua wrote this week that the central bank should intervene in order to make sure that a falling currency does not surpass India's fundamentals.
He said that the benefit of a depreciated currency in closing the trade gap would outweigh the damage to the capital account in terms of reduced confidence of investors.
The central bank may need to think of ways to bulk up its forex reserves, should the pool shrink to near $500 billion in the coming months, according to Barua.
At this stage, more capital is needed to stabilise the rupee and allow the RBI to replenish its reserves chest, he said.
In July, the RBI allowed foreigners to buy shorter term local debt as a way to encourage more inflows, and allowed foreigners to buy shorter term local debt.
Analysts say that measures have only helped marginally.
The central bank may have to prepare other options, such as those in 2013 when the rupee came under pressure due to the U.S. Federal Reserve announcing plans to taper bond purchases.
It may be time to think again of the taper tantrum playbook, subsidize forwards and get lumpy non-resident deposits in, Barua said.
He said that NRIs are sensitive to India's robust fundamentals and could be persuaded to deposit their dollars in India at attractive rates.