On a day when the benchmark BSE Sensex tanked 320 points and the rupee slid further, the Reserve Bank of India (RBI) stepped in to announce a series of measures to ease foreign currency flows and increase the availability of export credit in foreign currency.
The market battering also saw Finance Minister Pranab Mukherjee, who is in Manila to attend the annual ADB board meeting, blame the eurozone mess and volatile commodity prices for BoP (balance of payment) stress in many an Asian nation.
The rupee slumped almost to 54 before recouping the losses to close at 53.47/48, still down six paise from Thursday's closing against the dollar.
The Sensex dipped below the 17000-mark as fears revisited marketmen. It was widely believed that New Delhi's move to review the tax treaty with Mauritius was largely responsible for Friday's slump in the Sensex, which closed at 16831.08.
The rupee volatility read in tandem with stock slump forced the RBI to raise the interest rate ceiling on FCNR (B) (foreign currency non-resident bank) deposits across maturities. The interest rate on FCNR (B) deposits with maturity of one year to less than three years has been increased to LIBOR (London Inter-Bank Offered Rate)/Swap plus 200 basis points from LIBOR/Swap plus 125 basis points. Similarly, the interest rate on FCNR (B) deposits with a maturity of three-to-five years has been raised to LIBOR/Swap plus 300 basis points from LIBOR/Swap plus 125 basis points.
On floating rate deposits, the RBI said, the interest shall be paid within the ceiling of swap rates for the respective currency/maturity plus 200 basis points/300 basis points, as the case may be. “For floating rates, the interest reset period shall be six months,” the RBI added.
The RBI also said foreign currency loans out of FCNR (B) deposits could be given as pre-shipment credit in foreign currency/rediscounting of export bills abroad to exporters and other entities (including exporters who desire to avail themselves of foreign currency term loans for creating export capability) having a “natural hedge” or entities having a risk management policy for managing the exchange risk.
Interest rate on export credit
In another notification, the RBI decided to let the banks determine their interest rates on export credit in foreign currency with effect from Saturday. The above measures, the RBI said, were aimed at augmenting foreign currency inflows to banks which, in turn, could facilitate their foreign currency loans to exporters.
The central bank steps in to ease foreign currency flows and increase availability of export credit