Rajan's rupee moves

Last Updated: Fri, Sep 06, 2013 05:54 hrs

Raghuram Rajan – the new Reserve Bank of India (RBI) governor – has announced a slew of measures to attract capital flows in the country to provide support to the rupee which has depreciated around 22% in the current financial year.

Here are the key steps that were announced yesterday and their expected impact:

Measures Objective Impact
Swap window to banks for fresh FCNR(B) Dollar funds mobilized for at least 3 years at a fixed rate of 3.5% p.a Boosting forex reserves Banks can raise FCNR (B) deposit around 2.5 % cheaper than market rate; $10 billion inflows likely
Overseas borrowing limit of banks has been raised from 50% of unimpaired Tier I capital to 100% More room for banks to raise overseas funds Banks will have the headroom to raise around $ 30 billion
Exporters can rebook cancelled forward exchange contracts to the extent of 50%, importers to the extent of 25% Increase depth of FX market, aid operational ease Exporters, importers will have greater flexibility in foreign risk management
RBI will issue inflation indexed savings certificate linked to the new CPI index Attract domestic household savings Encourage household savings, which dropped to an 11-year low in FY12 and reduce structural pressure on current account gap.

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