Indian Rupee gains as RBI eases rules to boost foreign inflows

The steps include doubling borrowing limits for companies from overseas to $1.5 billion during a financial year, temporarily removing any interest-rate ceiling for banks to attract deposits from non-residents, and liberalizing rules for foreigners to invest in local-currency bonds, the Reserve Bank of India said in a statement Wednesday. The rupee gained.

“The measures announced are fundamentally good steps to attract capital, but may take some time to have an impact as the pressure on the rupee is coming from the large sticky current-account deficit, and not just capital outflows,” said Rahul Bajoria, chief India economist at Barclays Plc in Mumbai.

The rupee has slumped to a series of record lows in recent weeks, underscoring the economic challenges faced by the authorities as inflation accelerates and external finances worsen. The new rules will help “further diversify and expand the sources of forex funding so as to mitigate volatility and dampen global spillovers,” the central bank said.

“The RBI has returned its focus to boost dollar inflows to offset a widening current account shortfall and ease onshore dollar tightness,” said Radhika Rao, senior economist at DBS Bank in Singapore. The incremental flows could be absorbed to replenish the foreign exchange reserves, she said.