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RBI taking steps to attract foreign flows, says growth outlook remains strong

The Reserve Bank of India (RBI) on Thursday announced a series of measures to attract foreign flows in a bid to protect the currency which depreciated by more than 6% in 2022. While announcing these measures, the central bank said said the growth outlook for the Indian economy remains strong and resilient.

RBI said that despite headwinds from geopolitical developments, high crude oil prices and tightening external financial conditions, high-frequency indicators point to an ongoing recovery in several sectors.

“Reflecting these strong fundamentals, the Indian rupee has depreciated 4.1% against the US dollar in the current financial year so far (to July 5), which is modest compared to other EMEs and even major advanced economies (AEs),” the central bank said India’s foreign exchange reserves stood at $593.3 billion as of June 24, supplemented by a substantial stockpile of foreign exchange reserves. forward net assets.

“The current account deficit (CAD) is modest. All capital flows except portfolio investment remain stable and an adequate level of reserves provides a buffer against external shocks,” he said.

Among the measures taken to attract foreign flows, banks have been exempted from maintaining the cash reserve ratio and the regulatory liquidity ratio for additional NRE and FCNR (B) deposits as of the reporting fortnight beginning July 30, 2022 .

This easing will be available for deposits mobilized until November 4, 2022. Transfers from Non-Resident (Ordinary) (NRO) accounts to NRE accounts are not eligible for the easing.

In addition, RBI has temporarily allowed banks to raise new FCNR(B) and NRE deposits without reference to applicable interest rate regulations, effective July 7, 2022. This easing will be available for the period up to as of October 31, 2022. .

In a relaxation of existing standards on FPI investment in government bonds, the RBI said all new issues of government securities with a maturity of 7 and 14 years would be eligible for the fully accessible route (FAR ). Unlike other securities, the REIT’s investment in FAR-designated bonds is unlimited.

RBI has also relaxed standards on the residual maturity of REIT investments in government and corporate debt. Investments by REITs in such bonds made through October 31, 2022 are exempt from a short-term limit, whereby no more than 30% of investments may have a residual maturity of less than one year. The central bank also provided a window until Oct. 31 for REITs to purchase money market instruments such as commercial paper with an original maturity of up to one year.

With regard to external commercial borrowing, it has now been decided to increase the limit of the automatic route from $750 million to $1.5 billion. The overall cost ceiling under the ECB scheme is also raised by 100 basis points, provided the borrower is rated Investment Grade.