Clipped from: https://timesofindia.indiatimes.com/business/india-business/rbi-unveils-measures-to-curb-rupee-slump-boost-forex-inflows/articleshow/92706992.cms
NEW DELHI: The Reserve Bank of India (RBI) on Wednesday unveiled fresh measures to stabilise the rupee, which touched multiple record lows against the US dollar.
According to a statement released by the central bank, the overseas borrowing limit for companies has been raised. It also liberalised norms for foreign investments in government bonds, in a bid to increase foreign exchange inflows into the country.
The rupee has depreciated by 4.1 per cent against the US dollar during the current financial year so far. While, forex reserves fell by more than $40 billion over the past nine months.
However, the RBI continues to maintain that rupee is in a better position as compared to other global currencies.
“Rupee’s fall is modest relative to other EMEs and even major Advanced Economies (AEs),” RBI said.
At close of trade on Wednesday, rupee stood at at 79.3025 per dollar, not far from its record low of 79.3750 touched on Tuesday.
According to the statement, RBI has been closely and continuously monitoring the liquidity conditions in the forex market and has stepped in as needed in all its segments to alleviate dollar tightness with the objective of ensuring orderly market functioning.
Here are the measures announced by RBI:
* Cap on interest rate that lenders can offer on foreign deposits by NRIs has been removed till October.
* External commercial borrowing (ECB) limit under the automatic route from has been increased from $750 million or its equivalent per financial year to $1.5 billion.
* All-in cost ceiling under the ECB framework has been raised by 100 basis points, subject to the borrower being of investment grade rating.
* Banks can raise fresh FCNR(B) and NRE deposits without reference to the extant regulations on interest rates, with effect from July 7 till October 31.
* In the case of NRE deposits, as per extant instructions, interest rates shall not be higher than those offered by the banks on comparable domestic rupee term deposits.
* Banks have been exempted from cash reserve ratio (CRR) and statutory liquidity ratio (SLR) on incremental FCNR(B) and NRE term deposits.
* All new issuances of G-Secs of 7-year and 14-year tenors, including the current issuances of 7.10 per cent GS 2029 and 7.54 per cent GS 2036, will be designated as specified securities under the fully accessible route (FAR).
* As part of the macro prudential framework under the medium-term framework (MTF), FPIs can invest only in corporate debt instruments with a residual maturity of at least one year.
* FPIs will be provided with a limited window till October 31, 2022 during which they can invest in corporate money market instruments viz., commercial paper and non-convertible debentures with an original maturity of up to 1 year.
* FPIs can invest in government securities and corporate bonds through three channels: the MTF; the Voluntary Retention Route (VRR); and the Fully Accessible Route (FAR).
‘India’s growth prospects remain strong’
The RBI noted that despite global headwinds, India’s growth prospects remain strong and resilient.
“Despite headwinds from geopolitical developments, elevated crude oil prices and tighter external financial conditions, high frequency indicators point to an ongoing recovery in several sectors,” RBI said.
It further said that the Purchasing Managers’ Index (PMI) relating to services accelerated in June 2022 to its highest level since April 2011 and the expansion of the merchandise trade deficit in June 2022 underlines the strength of domestic demand.
India’s external sector has exhibited resilience and viability on the back of robust exports of goods and services and rising remittances, the RBI said, adding the Current Account Deficit (CAD) is modest.
(With inputs from agencies)