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:
|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.|