Five steps India has taken to bolster rupee

The Reserve Bank of India (RBI) persisted with its focus on the rupee with measures on Thursday to curb volatility by tackling intraday trading positions and to boost demand for the local unit by forcing exporters to sell half of the foreign currency in their accounts.

After the announcement, the battered rupee rose to 52.95 to the dollar from its record closing low of 53.85 on Wednesday, but gave up some of its gains later to trade at 53.30 to the dollar.

Following are some steps taken this month by the central bank and the government that impact foreign exchange markets.

May 10: The RBI said exporters need to liquidate 50 per cent of dollars in their accounts within two weeks, which will help release dollars into the market. The central bank also mandated that exporters should exhaust the available dollar balance in their accounts before tapping markets.

May 10: The RBI has allowed intraday trading at five times the net overnight open position limit of the bank or the central bank-approved intraday limit, whichever is higher. Earlier, traders could not exceed the overnight limit.

May 9: The central bank eased restrictions on the usage of foreign currency deposits by allowing banks to use funds from the foreign currency non-resident (FCNR) deposits as collateral against lending to local residents.

May 7: The government deferred a controversial set of tax proposals, which brought some relief to the rupee, though foreign investors have demanded more clarity about the guidelines.

May 4: The RBI relaxed the interest rate ceiling on 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 was 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.

Copyright: Thomson Reuters 2012