Indian rupee rallies on RBI measures to draw inflows to help oil-hit currency
- The RBI said it will restore the time for firms to remit export proceeds to nine months
MUMBAI: The Indian rupee rallied on Friday after the central bank announced steps to draw inflows and support the currency, one of Asia’s worst performers this year due to the prolonged Iran conflict.
The central bank held its policy rate steady on Friday, as was expected, but lowered its growth forecast and raised its inflation projection.
In his policy speech, RBI chief Sanjay Malhotra said the central bank would offer a discounted forex swap facility for about four months to incentivise external commercial borrowings by public sector undertakings.
It would also open a similar facility for bearing the full hedging cost for banks to raise three-to-five year deposits from non-resident Indians through September 30.
The RBI said it will restore the time for firms to remit export proceeds to nine months.
In addition, the central bank announced a series of measures to encourage flows into India’s debt market.
Simultaneously, India’s government said it would exempt foreign institutional investors from capital gains tax on receipts arising from interest or sale of government bonds.
In response, the rupee rose to 95.2450 to the U.S. dollar from 95.67 before the policy outcome. Forward premiums on dollar/rupee dropped.
The measures come against the backdrop of sustained pressure on the rupee, which has weakened more than 6% this year, making it the second-worst performing Asian currency year-to-date.
The steps announced by the RBI echo past use of concessional swap windows to encourage foreign currency inflows back in 2013, which had attracted sizeable deposits.
The stress on the currency was underscored by Prime Minister Narendra Modi recently urging citizens to conserve foreign exchange amid the surge in crude oil prices driven by the war in the Middle East.
The RBI has been using reserves to cushion the impact, while foreign investors exit Indian equities at a brisk pace.
India’s FX reserves are hovering near their lowest level in more than a year.
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