India’s central bank mounted a fresh defense of the beleaguered rupee, announcing a raft of measures to boost foreign exchange inflows and stem a rout in the local currency.
The steps include doubling borrowing limits for companies from overseas to $1.5 billion during a financial year, the Reserve Bank of India said in a statement on Wednesday. It also temporarily removed any interest-rate ceiling for banks to attract deposits from non-residents and liberalised rules for foreigners to invest in local currency government and corporate debt.
The rupee has tested a series of record lows in recent weeks, underscoring the economic challenges faced by authorities as inflation accelerates and external finances worsen. The steps announced will help “further diversify and expand the sources of forex funding so as to mitigate volatility and dampen global spillovers”, the central bank said.
The RBI is clearly aiming at softening the depreciation bias and capping the speculative moves against the rupee, said Suvodeep Rakshit, senior economist at Kotak Institutional Equities. “The measures come on the back of a substantial dollar shortage and are aimed at shoring up the capital flows into India,” he said.
The rupee rose in the offshore market on steps which came after the close of local markets. The dollar/rupee one-month non-deliverable forward was down 0.1 per cent after rising as much as 0.3 per cent.
The moves came just days after the federal government raised import duties on gold, apart from increasing levies on exports of gasoline and diesel in an attempt to control a fast-widening current account gap.
The currency has shed more than 6 per cent this year, putting it on the threshold of 80 per dollar for the first time, as fears of a potential global recession fuel outflows from emerging markets. The rupee has also been punished as spiraling oil prices widen India’s trade deficit to a record, and about $29 billion of outflows from equities.
“The Reserve Bank has been closely and continuously monitoring the liquidity conditions in the forex market and has stepped in as needed to alleviate dollar tightness,” it said. The central bank has been intervening in foreign-exchange markets on a regular basis, with Barclays Plc estimating it has spent over $40 billion to defend the rupee since February.
