Govt has limited options to prop up rupee: Morgan Stanley

MUMBAI: Policy-makers in the country have fewer options to manage rupee volatility except announcing measures like special dollar deposit scheme in case the global risk aversion lingers among investors, a report by Morgan Stanley Research said here on Tuesday.

"In the near-term, apart from augmenting capital inflows via a special dollar deposit scheme, we believe policy makers have few options to manage exchange rate volatility if risk aversion in global financial markets continues," the report said.

The rupee has depreciated 7.4 percent against the dollar since January and over 30 percent since last August, as dollar became the most sought-after currency.

This was on the back of persistent demand and falling capital inflows due to the risk aversion attitude of global investors. "India remains most exposed to global funding risks considering its high current account deficit," the report added.

According to Morgan, while the country's current account deficit rose to USD 72 billion till March 2012, from USD 49 billion in the preceding 12 months, total capital inflows declined to USD 57 billion from USD 67 billion during the review period.

"India is in a bind caused by indecisiveness on policy action and a fragile global environment. India's exit from its vicious cycle depends on some obvious elusive policy action or a hard-to-forecast recovery in global risk appetite," the report said.

However, the firm is bullish on stocks because of attractive valuations.