By PR Venkat
India’s central bank has eased debt market rules for foreign portfolio investors and allowed commercial banks to raise interest rates on non-resident foreign currency deposits in a bid to support the rupee and increase foreign exchange reserves.
“The Reserve Bank [of India] has closely and continuously monitored liquidity conditions in the foreign exchange market and intervened in all of its segments to alleviate them as necessary [U.S.] dollar shortages with the aim of ensuring an orderly functioning of the market,” it said late Wednesday.
The RBI said the measures are aimed at diversifying and expanding sources of foreign exchange funding to mitigate volatility and dampen global spillovers.
The rupee is down 4.1% against the dollar since the start of the current fiscal year, which began in April, the central bank said. The Indian currency fell to a record intraday low of around 79.56 against the dollar on Wednesday, according to FactSet. The rupee was little changed against the greenback on Thursday, trading at around 79.01.
The central bank said high risk aversion in financial markets has led to high volatility and sell-offs in risky assets.
“As a result, emerging markets are facing a reduction in portfolio flows and continued downward pressure on their currencies,” it said.
Some of the measures include removing the short-term cap on foreign portfolio investors subscribing to government and corporate bonds. Companies are now automatically approved to raise up to $1.5 billion each fiscal year, up from the current limit of $750 million.
The central bank said these measures will “improve forex inflows while ensuring overall macroeconomic and financial stability.”
Barclays analysts said in a note that they think the measures are comprehensive, “but it will take time for them to affect demand-supply imbalances in foreign currencies.”
Write to PR Venkat at email@example.com
https://www.marketwatch.com/story/india-s-central-bank-takes-steps-to-stem-rupee-s-slide-271657163218?rss=1&siteid=rss India’s central bank takes steps to stem rupee slide