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Sunday, April 18, 1999 Published at 15:24 GMT 16:24 UK

Business: The Economy

Ready to defend the rupee

India's parliament: Could Congress rule the roost again?

India's central bank is poised to intervene on the markets to protect the rupee if the currency begins to lose too much value after the collapse of the New Delhi government.

The prospect of another unstable Indian coalition government could depress the rupee's value and reduce international confidence in the Indian economy.

Since the early 1990s India has been liberalising its former state-controlled economy and is now seen as a potentially lucrative emerging market.

The government was defeated on Saturday in a parliamentary vote of confidence. Prime Minister Atal Behari Vajpayee subsequently tendered his resignation.

[ image: Sonia: Tipped for the top]
Sonia: Tipped for the top
The decline of Mr Vajpayee's Bharatiya Janata Party (BJP) now gives Congress the opportunity to return to govern India as it has done for all but six years of the past half century.

Rocky rupee

The rupee is expected to fall to 42.80-43.00 to the dollar first thing on Monday.

It ended last week at 42.72 to the US dollar.

"As events unfold the RBI (Reserve Bank of India) will keep a close watch on it," an Indian Treasury spokesman said.

"It won't let the rupee slip drastically."

Analysts said the currency would fall sharply only if the political uncertainty began affecting economic policy, particularly if the country's 1999/2000 budget was scrapped.

But that seems unlikely as the major political parties have said they do not want to jeopardise the budget.

[ image: Vajpayee: He is no longer the victor]
Vajpayee: He is no longer the victor
Prominent Congress party politician Sharad Pawar said: "Definitely our approach will be that there should not be any financial crisis in the country."

Don't panic

Even though India's parliament is evenly split, making it extremely difficult for any party to form a stable government, the market is unlikely to panic, one regional expert said.

"I expect the rupee to open 10 paise (0.10 rupee) lower... maybe 15 paise at the most," said the treasury head at a European bank.

"But I do not see any reason for sharper moves...I think we have seen throughout last week that the market seems to be a bit more mature," he added. "A year or two earlier, we might have seen a one-rupee move on this kind of uncertainty."

Since the political uncertainty started some two weeks ago, the lowest level the rupee hit was 42.87 in some deals last week, around 1% weaker than its 31 March close of 42.43 to the dollar.

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