With the rupee under pressure from rising crude oil prices and heavy foreign investor outflows, the Reserve Bank of India (RBI) on Friday announced a series of steps aimed at bringing more dollars into the country and improving foreign currency liquidity.
The measures come at a time when the Indian currency has fallen to record lows against the US dollar. Higher oil prices following the conflict in West Asia have increased India’s import bill, while foreign investors have pulled billions of dollars out of Indian equities this year.
While keeping the repo rate unchanged at 5.25%, the RBI also unveiled a package of liquidity and investment-related measures designed to encourage foreign inflows and support the domestic currency.
Governor Sanjay Malhotra said the central bank had decided to introduce a number of temporary and structural measures to improve the availability of foreign exchange and make Indian debt markets more accessible to overseas investors.
MORE GOVERNMENT BONDS OPENED TO FOREIGN INVESTORS
One of the biggest announcements relates to government bonds.
The RBI said all new issuances of 15-year, 30-year and 40-year government securities will now be included under the Fully Accessible Route (FAR).
The FAR framework allows foreign investors to invest in eligible government securities without being subject to investment limits.
This move is expected to make Indian government bonds more attractive to global investors, especially because securities under the FAR category are already included in three major global bond indexes.
The RBI also announced that investment limits on other government securities will be removed, further opening up the sovereign bond market to foreign capital.
The measures are expected to help attract long-term overseas funds into India’s debt market.
NRI AND OCI INVESTMENT LIMITS RELAXED
In another step aimed at boosting inflows, the RBI has expanded investment opportunities for Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs).
The central bank said investment limits for NRIs and OCIs will be increased and the facility will now be extended to all individual persons residing outside India.
The move could encourage greater participation from the Indian diaspora and overseas investors in domestic financial markets.
RBI TO OFFER CONCESSIONAL FOREX SWAP WINDOW
The RBI also announced a concessional foreign exchange swap facility that will remain available until September 30.
The facility is designed to encourage banks and market participants to bring foreign currency into India by reducing the cost of converting dollars into rupees.
Such swap arrangements have been used in the past by the central bank during periods of foreign exchange stress to boost dollar liquidity in the domestic market.
SUPPORT FOR EXTERNAL BORROWINGS
The central bank has also decided to encourage external commercial borrowings (ECBs), particularly by public sector undertakings.
External commercial borrowings allow Indian companies to raise funds from overseas markets.
By making such borrowings more attractive, the RBI hopes to bring additional foreign currency into the country at a time when external financing conditions have become more challenging.
SPECIAL PUSH FOR FCNR(B) DEPOSITS
Another key measure announced by the RBI relates to Foreign Currency Non-Resident Bank, or FCNR(B), deposits.
The central bank said banks will be allowed a special facility until September 30 under which they can raise three-to-five-year FCNR(B) deposits while receiving support related to the full hedging cost.
FCNR(B) deposits are an important source of foreign currency inflows because they allow Indians living abroad to maintain fixed deposits in foreign currencies.
Historically, special FCNR schemes have been used by the RBI during periods of currency volatility to attract dollars into the banking system.
EXPORTERS GET MORE TIME
The RBI also announced that it will restore the time period for realisation of export proceeds to nine months.
The move gives exporters additional time to bring export earnings back into the country, helping businesses manage cash flows more efficiently while maintaining foreign exchange inflows.
The measures come as the central bank faces increasing pressure from developments in global markets.
Crude oil prices have surged sharply in recent months, increasing concerns about inflation and India’s current account deficit. At the same time, foreign investors have pulled record amounts of money out of Indian equities this year, putting additional pressure on the rupee.
During the policy announcement, Governor Malhotra acknowledged that the external environment had become more challenging, with rising energy prices and geopolitical tensions creating uncertainty for emerging markets.
Against this backdrop, the RBI’s latest package appears aimed at ensuring that India continues to attract sufficient foreign capital while improving dollar liquidity in the financial system.
While the measures are unlikely to immediately reverse the rupee’s decline, they signal that the central bank is prepared to use multiple tools beyond interest rates to strengthen the country’s external position and support foreign currency inflows.
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