By A Special Correspondent
First publised on 2022-07-07 09:54:33
The rupee is continuously sliding against the dollar due to a host of reasons. The foreign portfolio investors (FPIs) are taking out billions of dollars from the Indian markets as interest rates are hiked in the US and other countries. The trade deficit and also the current account deficits are widening. Although the RBI has a healthy reserve of foreign exchange, market intervention is not always the best way to stop the slide of the rupee. Hence, the apex bank has come out with a slew of other measures to counter it.
In a bid to attract dollar capital inflows, the RBI has allowed banks to give higher returns on foreign currency deposits. It has also done away with the requirement of maintaining reserves against these deposits. It has widened the basket of securities available to FPIs to attract more investment or stop the outflow. It has also relaxed the rules for external commercial borrowings for corporates. Now, corporates can borrow up to $1.5bn through the automatic route. The cap on borrowing costs has also been raised by one percentage point.
These measures are similar to the ones that were successfully undertaken in 2013 when the rupee had begun to slide against the dollar. That was due to the taper tantrum when the US Fed slowed down bond-buying programme that was on due to the global financial crisis, leading to outflows and consequent pressure on the rupee. Although the situation is different this time, the RBI thinks that the tested method will work in stabilizing the rupee. But experts have said that it may have limited effect as more than foreign currency outflows, the pressure this time is due to widening current account deficit. However, these measures are in addition to other measures including market intervention that the RBI undertakes from time to time to ensure that the rupee does not get devalued too much against the dollar. Hence, they are welcome.