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The central bank said it 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
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Reserve Bank of India (RBI) on Wednesday further liberalised norms to boost inflows of foreign exchange, including doubling the borrowing limit under the ECB route, amid the rupee falling against the US dollar.
In a statement, the central bank said it 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.
The measures taken by the central bank comes in the backdrop of rupee depreciating by 4.1 per cent against the US dollar during the current financial year so far (up to July 5) amid the ongoing geopolitical tensions.
"In order to further diversify and expand the sources of forex funding so as to mitigate volatility and dampen global spillovers", the central bank said it has decided to undertake five measures to enhance forex inflows while ensuring overall macroeconomic and financial stability.
"The RBI’s measures comes on the back of substantial dollar shortage and aimed at shoring up the capital flows into India. While it is difficult to ascertain the quantum of flows, the measures are attractive the for banks and FPIs. While India’s macro situation is better than in the 2013 period, these measures would alleviate and preempt the adverse impact on the external sector balance. The RBI is clearly aiming at softening the depreciation bias and capping the speculative moves against the Rupee," said Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities.
The measures include easing norms for FPI investment in debt market, and increasing the External Commercial Borrowing (ECB) limit under the automatic route from USD 750 million or its equivalent per financial year to USD 1.5 billion.
"RBI’s measures are a welcome step in attracting capital flows at a time when India is witnessing heavy stress on current account deficit and persistent FPI outflows. INR has remained under extreme pressure amidst increasing global volatility as markets continue to gauge the monetary tightening led consequential impact on growth-inflation dynamics," said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.
"The flight to safety and elevated crude oil prices have deteriorated the INR outlook. The measures should help in attracting NRI deposits and also reasonable FPI inflows in the bond market in the shorter end, providing relief to the supply laden market. FPI’s permission on corporate money market instruments will also aid inflows in the debt segment," added Bhardwaj.