*RBI’s steps to have positive impact on capital inflows, rupee: DEA secretary | The Financial Express

Clipped from: https://www.financialexpress.com/economy/rbis-steps-to-have-positive-impact-on-capital-inflows-rupee-dea-secretary/2586690/

The central bank on Wednesday announced a series of measures to boost foreign exchange inflows, including permitting overseas investors to buy short-term corporate debt and allowing more government securities under the fully accessible route. It doubled the external commercial borrowing (ECB) limit under the automatic route to $1.5 billion, among others.

The secretary also downplayed fears of a worldwide economic recession, but acknowledged that with interest rates being hiked by key central banks to curb inflationary pressure, it will cool down growth.The secretary also downplayed fears of a worldwide economic recession, but acknowledged that with interest rates being hiked by key central banks to curb inflationary pressure, it will cool down growth.

A day after the Reserve Bank of India (RBI) announced a raft of measures to shore up the rupee, economic affairs secretary Ajay Seth said on Wednesday that the “well thought through” steps will have a “positive impact” on capital inflows from overseas and help strengthen the domestic currency.

The secretary also downplayed fears of a worldwide economic recession, but acknowledged that with interest rates being hiked by key central banks to curb inflationary pressure, it will cool down growth.

The central bank on Wednesday announced a series of measures to boost foreign exchange inflows, including permitting overseas investors to buy short-term corporate debt and allowing more government securities under the fully accessible route. It doubled the external commercial borrowing (ECB) limit under the automatic route to $1.5 billion, among others.

The Department of Economic Affairs (DEA) secretary said two types of measures have been announced — one pertains to procedural aspects to make it even easier to invest in India, either in the markets or through the ECB route; the other is to lend variety to the yield curve on government securities. All new issuances of government papers of seven-year and 14-year tenors will now be available for investments under the fully accessible route, along with the currently available securities of five-year, 10-year and 30-year tenors.

Commenting on the “transitory” nature of certain RBI measures, Seth said, “We do expect that the headwinds which are there will subside over a period of time. Considering the nature of challenges, measures are also transitory.”

The central bank has decided to exempt banks from including incremental foreign currency non-resident (bank) and non-resident (external) rupee deposits with a reference base date of July 1, 2022 from the maintenance of cash reserve ratio and statutory liquidity ratio. This relaxation will be available for deposits mobilised up to November 4, 2022. The cap on interest rates on such deposits has also been removed with effect from July 7 and up to October 31, 2022.

The central bank’s move to prop up the rupee followed the government’s imposition of an export levy on petroleum products and a hike in the import duty on gold to as much as 15% from 10.75%.

After gaining 39 paise against the dollar on Wednesday, the rupee shed 19 paise on Thursday to close at 79.13. It has weakened by 4.1% against the dollar until July 5 this fiscal. Still, the depreciation is modest relative to other emerging market or advanced economies, the central bank said.

Since the Ukraine war started in late February, the central bank has been intervening in the market to ensure an orderly movement of the rupee, although sources have said that it wasn’t trying to rein in the local currency at a certain level. Since February 25 (a day after the war), foreign exchange reserves have dropped by almost $41 billion, reflecting the market intervention.

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