With the rupee treacherously close to the 80 level, questions have been raised about the Reserve Bank’s and the finance ministry’s ability to check its fall.

On Friday, the domestic currency touched a historic intra-day low of 79.97 to the dollar.

Aggressive intervention by the central bank throughout the day and dollar inflows from the Google-Bharti Airtel stake sale deal saw the unit recovering to close largely unchanged at 79.87.

Given the direction of the currency in recent times, experts are of the view that the rupee is likely to fall below the 80-mark next week and remain under pressure at least till the US Federal Reserve announces its interest rate decision after a two-day meeting that ends on July 27.

The currency’s decline to around 80 led to micro-blogging sites such as Twitter turning into a bushfire of memes and old videos of BJP leaders including Narendra Modi and Nirmala Sitharaman slamming the earlier UPA government and its incompetency for doing nothing to counter the rupee’s fall which had then burst past 62 against the greenback.

Those old videos have now started to haunt the Modi regime – and raise questions on whether the Centre and the RBI need to do more to stem the rupee’s fall.

Sanjeev Sanyal, a member of the Economic Advisory Council of the Prime Minister, told a television channel that “We should be careful about judging the rupee as the US dollar is strengthening.

The rupee is strengthening against the euro, pound, yen… need to allow the rupee to adjust to whatever market will take it”.

“For rupee management, the RBI will use reserves to smoothen the course. The RBI measures for rupee management have medium- and long-term implications. Need caution against trying to defend a certain level of the rupee by the central bank,” he said.

Some analysts feel the RBI which has mopped up $210 billion over the last three fiscal years to prevent the rupee from appreciating significantly, should now do the reverse and supply dollars aggressively and prop up the domestic currency.

Given the voracious demand for crude oil, there is also a view that the central bank should repeat what it did /in 2013 during the taper tantrum — opening a forex swap window for oil companies wherein it lends dollars to oil marketing companies for the same amount of rupees that had to be returned over some time.

Some also argue that the RBI should reduce the interest rate differential between the US and India by hiking interest rates. International banking and financial market expert Ananth Narayan, who is an associate professor at SP Jain Institute of Management and Research, said that allowing the rupee to depreciate against the dollar at the current juncture would make sense even as he hinted that the RBI should keep the forex reserves handy so that it can be used at a later date in the event of more challenging conditions.

Pointing out that the rupee’s fall is not surprising as there are more outflows than inflows, he added that during the current fiscal India is staring at a current account deficit (CAD) of over $100 billion, amid a $26 billion trade deficit in June.

“The dollar has strengthened against all currencies that including the yen, euro and the pound sterling. Its gain against these currencies over the last one year is anywhere between 13 per cent and 20 per cent.”

“However, the rupee has only weakened by 7 per cent and has strengthened against euro, sterling and yen… “What if crude oil prices were to stay elevated for a longer period.

In such an event (large forex reserves would come handy) it would be appropriate for the RBI to allow the rupee to weaken now sothat the issue of a skewed CADis addressed-imports fall andexports rise,’’ he added.

Anindya Banerjee, VP, Currency Derivatives & Interest Rate Derivatives at KotakSecurities, said that the overall strength of the dollar will persist till the US Federal Reserve hikes interest rates to control inflation.

“One cannot rule out RBI intervention in the coming days, but if the dollar rally continues then the rupee may hit the 80.50 levels,” he added. “We expect the rupee to remain under pressure in the near term and trade in the range of 79.75-80.15 to the US dollar in the next fortnight, with a depreciating bias, with the Fed policy action providing further clues,” Madan Sabnavis, chief economist, Bank of Baroda, said.

Sharp dip in reserves

The country’s foreign exchange reserves declined by a massive $8.062 billion to $580billion in the week ended July 8, according to RBI data.