* Rupee closes at 61.30/31 a dollar vs Tuesday close of
* Rupee near Tuesday's record low of 61.80/dollar
* Financial regulators meet in Mumbai, dealers expect steps
(Updates with close, comments from trade)
By Subhadip Sircar
MUMBAI, Aug 7 (Reuters) - The Indian rupee fell on Wednesday
to within striking distance of a record low, as dealers waited
for word from policymakers on steps designed to boost inflows
and prop up the battered currency.
Bond and forex dealers were betting the next steps to defend
the rupee would come from the government, averting further harsh
measures by the central bank to tighten cash.
Financial sector regulators, including Raghuram Rajan, who
takes over next month as governor of the Reserve Bank of India,
were meeting in the financial capital, Mumbai, but the meeting's
outcome is not yet known.
New Delhi is likely to relax borrowing rules for debt-laden
Indian companies, including doubling the amount a firm can
borrow overseas to $1.5 billion, the Economic Times newspaper
The rupee closed at 61.30/31 against the dollar, clawing
back slightly from the day's low of 61.4475, which was not far
off the previous day's record low of 61.80.
"Rajan is definitely a big positive for the RBI and India,"
said Paresh Nayar, head of fixed income and currencies at First
Rand Bank. "But rupee appreciation is dependent on some major
macro announcements. We all are living on hope ... and the wait
is getting a bit longer."
New Delhi has considered a sovereign bond issue or a sale of
bonds to non-resident Indians by state-run firms, although the
central bank has opposed a sovereign issue.
Policymakers have tried to avoid raising the policy repo
rate, a step likely to force up bank lending rates,
for fear of worsening a slowdown in an economy that grew 5
percent in the last fiscal year, its slowest rate in a decade.
The central bank's costly gamble last month to raise
short-term interest rates and drain market liquidity in order to
defend the rupee at the cost of crimping corporate credit is not
paying off, with the currency down 2.3 percent since before the
measures were unveiled on July 15.
Bonds posted gains, with the benchmark 10-year yield
down 6 basis points at 8.14 percent.
The central bank's steps were increasing downside risks to
growth, Morgan Stanley said on Wednesday, which could slide to
levels of 3.5 percent to 4 percent if the economy fell into a
vicious slowing cycle.
The investment bank's warning comes amid recent cuts in
growth forecasts for Asia's third-biggest economy from a raft of
banks and brokerages, such as Bank of America Merrill Lynch,
Macquarie and CLSA.
India's Congress-led government, facing a hostile opposition
in the monsoon session of parliament that started this week, has
been promising more steps to boost fund inflows.
But a second day of gridlock in Parliament over India's
response to a border ambush that killed five soldiers in
disputed Kashmir raised questions about how the government would
drive through its bulky legislative agenda, including an
ambitious food security measure.
Most investors saw India's battered image being helped by
Tuesday's appointment of Rajan, a former chief economist of the
International Monetary Fund, to head the country's central bank.
"We think Rajan's appointment will give the government
breathing space to come up with a more credible road map to
address currency weakness and outflows," Barclays economists
wrote in a note.
"To restore market confidence, the authorities need to
change the strategy and admit to the seriousness of imbalances
in the economy and come up with a strong package of measures
addressing both short-term flows and the need to stimulate
growth and reduce the current account deficit."
(Additional reporting by Swati Bhat; Editing by Tony Munroe and
Simon Cameron-Moore and Clarence Fernandez)