MUMBAI: India's central bank on Friday announced measures to augment foreign currency inflows, following a sharp fall in the rupee in recent sessions, although traders said the moves may not be enough to stem further near-term weakness.
The rupee is down about 9 percent since March and saw precipitous falls in the last three sessions before recovering its daily losses on Friday. The Reserve Bank of India is believed to have stepped in to the market to defend the currency on Wednesday and Thursday, and possibly Friday, traders said.
The currency is down 2.3 percent for the week, closing at 53.47/48 to the dollar, putting it close to the record 54.30 plumbed in December, with traders blaming worry about the country's current account and fiscal deficits as well as new tax proposals.
"Maybe some foreign fund inflows will be augmented because of this step, but I don't think it is enough to stop the downward fall of the rupee," said Ashtosh Raina, head of foreign currency trading at HDFC Bank.
"I think the RBI is trying to address the issue step by step, and this is the first move," he said, adding that the rupee was likely to remain in the 53-54 range.
The RBI relaxed the interest rate ceiling on foreign currency non-resident (FCNR) deposits of banks with maturities of 1 year to less than 3 years to 200 basis points above the LIBOR or swap rate, from 125 basis points now.
On 3 to 5-year maturity FCNR deposits, the rate ceiling will be relaxed to 300 basis points above LIBOR.
The central bank also allowed banks to freely determine the interest rates on export credit in foreign currency.
The measures, announced after the close of markets on Friday, will be effective from Saturday.
Another trader, who declined to be identified, said the moves may improve sentiment but not translate into further near-term flows as the measures will take time to have an effect.
Net portfolio outflows stood at around $540 million over the last two months compared with $13 billion in inflows in January-February.
India takes steps to ease currency inflows
