If the Reserve Bank of India wants some pointers on how to lift the rupee decisively off record lows, it could try asking Turkish central bank governor Erdem Basci.
The rupee tumbled to a new record low against the dollar on Tuesday, raising the stakes for the RBI, whose stop-start currency defense strategy is widely seen as inadequate.
Many are contrasting its hesitation with the Turkish central bank’s more successful efforts to stave off a currency collapse.
On the face of it, both central banks have responded similarly to a selloff which has reduced the value of the rupee and lira by almost a tenth against the dollar this year.
Both have balked at offering investors significantly higher interest rates to staunch the bleeding, instead opting to tighten policy by squeezing money market liquidity. Yet investors remain unconvinced of the RBI’s stomach – and ability – to defend the rupee.
“We are down to central bank credibility and I think Turkey has been more credible,” said Murat Toprak, emerging markets strategist at HSBC in London.
“There is (disconnect) between India’s monetary policy stance and the currency moves, there is no line in the sand … In Turkey, the stance is clear: ‘we are here to defend the currency if needed’.”