RBI eases rules to boost forex inflows

July 07, 2022 12:00 am | Updated 05:39 am IST - Mumbai

It relaxes interest rates on NRIs’ foreign currency deposits, doubles overseas borrowing limit for firms

Joining battle:The RBI says move is aimed at helping mitigate volatility and dampening global spillovers.AFPINDRANIL MUKHERJEE

Joining battle:The RBI says move is aimed at helping mitigate volatility and dampening global spillovers.AFPINDRANIL MUKHERJEE

The Reserve Bank of India (RBI) on Wednesday announced a slew of temporary measures aimed at boosting foreign exchange inflows, including a doubling in the overseas borrowing limit for corporates and removal of interest rate ceilings for NRIs’ foreign currency deposits. The move comes as persistent capital outflows and a widening trade deficit have led to a sharp depreciation in the Indian rupee to new lows against the dollar.

Observing that the rupee had depreciated by 4.1% against the dollar (upto July 5) so far this financial year, the RBI asserted that, barring portfolio investments, capital flows remained stable with an adequate level of reserves providing a buffer against external shocks. India’s foreign exchange reserves stood at $593.3 billion as on June 24, supplemented by a substantial stock of net forward assets, it said.

“The Reserve Bank 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. In order to further diversify and expand the sources of forex funding so as to mitigate volatility and dampen global spillovers, it has been decided to undertake measures... to enhance forex inflows while ensuring overall macroeconomic and financial stability,” the RBI added.

As part of the measures, banks have been exempted from maintaining the stipulated Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) on incremental FCNR(B) and NRE term deposits mobilised up to November 4. “It has been decided that with effect from the reporting fortnight beginning July 30, incremental FCNR(B) and NRE deposits with reference base date of July 1, 2022, will be exempt from the maintenance of CRR and SLR,” the RBI said.

It also freed banks to temporarily raise fresh FCNR(B) and NRE deposits without reference to extant regulations on interest rates, with effect from July 7 and up to October 31, 2022.

FPI debt norms loosened

To encourage foreign portfolio investment into debt, the RBI said the choice of government bonds available for investment under the fully accessible route (FAR) would be widened, with all new issuances of G-Secs of 7-year and 14-year tenors, including the current issuances of 7.10% GS 2029 and 7.54% GS 2036, designated as specified securities.

The RBI also temporarily doubled the annual limit for External Commercial Borrowings (ECB) to $1.5 billion or its equivalent.

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