RBI’s intervention to boost Forex Inflows

RBI’s intervention to boost Forex Inflows

News: The Reserve Bank of India (RBI) announced a slew of temporary measures aimed at boosting foreign exchange inflows, including a doubling in the overseas borrowing limit for corporates and removal of interest rate ceilings for NRIs’ foreign currency deposits.

About:
• The move comes as persistent capital outflows and a widening trade deficit have led to a sharp depreciation in the Indian rupee to new lows against the dollar.
• 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.

What are the measures taken?
• The banks have been exempted from maintaining the stipulated Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) on incremental FCNR(B) and NRE term deposits mobilised up to November 4.
• It also freed banks to temporarily raise fresh FCNR(B) and NRE deposits without reference to extant regulations on interest rates, with effect from July 7 and up to October 31, 2022.
• To encourage foreign portfolio investment into debt, the RBI said the choice of government bonds available for investment under the fully accessible route (FAR) would be widened.
• The RBI also temporarily doubled the annual limit for External Commercial Borrowings (ECB) to $1.5 billion or its equivalent.

Please note you may remember some of the facts mentioned above and add it in your answers on questions that may ask about role that RBI plays in checking outflow of valuable foreign investments or to maintain forex reserves.