Economic Affairs Secretary Ajay Seth on Thursday said the measures taken by Reserve Bank of India (RBI) will increase inflows of overseas funds and help in strengthening the rupee against the US dollar.
RBI on Wednesday raised the overseas borrowing limits for companies and liberalised norms for foreign investments in government bonds as it announced a slew of measures to boost foreign exchange inflows. Seth said RBI measures, including on External Commercial Borrowing (ECB), are transitory and for shorter duration, and would help in boosting the foreign currency inflows into the country.
RBI on Wednesday increased the ECB limit under the automatic route from USD 750 million or its equivalent per financial year to USD 1.5 billion and eased the norms for FPI investments in the debt market. Seth also expressed hope that the global challenges would subside in the short term. Unveiling the measures on Wednesday, the central bank said that all capital flows barring portfolio investments remain stable and an adequate level of reserves provides a buffer against external shocks.
Among the fresh steps, the cap has been removed on interest rate that lenders can offer on foreign deposits by NRIs. The relaxation will be in force till October. Since the war in Ukraine broke out in late February, RBI has expended its foreign exchange reserves in order to shield the rupee from steep depreciation. Since February 25, the headline foreign exchange reserves have declined by USD 40.94 billion.
The rupee has depreciated by 4.1 per cent against the US dollar during the current financial year so far (up to July 5). However, it is modest relative to other EMEs and even major Advanced Economies (AEs).