New Delhi, Oct. 1: The finance ministry wants the Reserve Bank of India (RBI) to ease liquidity to prevent the rupee from depreciating further.

The rupee has been falling against the dollar as foreign institutional investors sell in the domestic bourses and repatriate dollars to shore up plunging bottomlines.

After ruling at the Rs 40-level to the dollar a year ago, the rupee has crossed the 47-mark now.

While exporters gain from the falling rupee because their produce becomes more competitive, importers need more of the domestic currency for their purchases.

Of particular concern is the import bill for crude oil which has shot up 76.7 per cent to $10.96 billion from $6.2 billion in August 2007.

North Block, consequently, supports the selling of dollars by banks, with the backing of the RBI. It is also in favour of easing liquidity conditions by other means.

Both the government and the RBI had favoured a tight money policy till now to keep a check on inflation. However, the huge depreciation of the rupee is causing worries all around, and North Block feels it will be safer to nudge the rupee to a stable rate of between 45 and 47 to the dollar.

One way for the RBI to ease liquidity conditions is to cut the cash reserve ratio (CRR), or the amount of money that banks have to compulsorily keep with the central bank. CRR is currently ruling at 9 per cent, and many analysts feel there is room to cut it by a quarter-to-half-percentage point.

The trade lobby, which is traditionally backed by the commerce ministry, would like to see the rupee depreciating further to push export growth.

The RBI, itself, has till now followed a policy of soft intervention in the money market, along with the sterilisation of inflows. “The whole aim now is not to either depreciate or appreciate the currency but rather to contain volatility,” officials said.

“We want the market to find its own levels but too sharp an appreciation as in the previous year or too sharp a fall is not something we are comfortable with,” they said.

India’s foreign exchange reserves, which crossed $300 billion earlier, are expected to decline in the coming months ahead. This may prompt the RBI to intervene more frequently just to keep the rupee where it is today.

Sensex gain

Extending its gain for the second straight day, the sensex today regained the 13000-point level, giving credence to the feeling that the market is oversold.

The BSE bellwether advanced 195.24 points to close at 13055.67, a day after it gained 265 points defying global trends. The sensex touched the day’s high of 13203.86 points but pared part of the gains at the fag end of the session on profit booking.