Amid large capital outflows, downward pressure on the rupee and reserve drawdowns, the Reserve Bank of India (RBI) announced on July 6 a slew of measures to attract greater foreign exchange flows to India. “In order to further diversify and expand the sources of forex funding so as to mitigate volatility and dampen global spillovers, it has been decided to undertake measures to enhance forex inflows while ensuring overall macroeconomic and financial stability”, the RBI said in its press release.
The measures are regulatory relaxations aimed at attracting larger forex flows through bank deposits, foreign portfolio investments in debt instruments, and external commercial borrowings (ECBs) by Indian corporates. The five new measures are summarized below:
A Two-Front Challenge
The above measures are intended to compensate for large foreign capital outflows and their downward pressure on the rupee-dollar exchange rate. So far in 2022, the rupee has fallen by 7 percent against the US dollar. On July 19, the rupee breached the psychological mark of 80 per US dollar amid global financial tightening, rising interest rates in advanced economies, and a stronger US dollar.
There is no denying that the Indian rupee has recently appreciated against several global currencies such as the British pound, Japanese yen and euro, but what really matters is the
— source madhyam.org.in | Kavaljit Singh | Jul 26, 2022