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.
