RBI takes measures to ease foreign currency flows - Microsec Research

In order to stem rupee's falling against US dollar, the Reserve Bank of India (RBI) has announced two pronged measures to ease foreign currency flows and also to enhance the availability of export credit in foreign currency.

The regulator has hiked the rate of foreign Currency Non-Resident (FCNR) deposits by 75-175 basis points to 200 bps for maturity period of one year to less than 3 years and to 300 bps for maturity period of 3-5 years. Moreover, RBI has deregulated the ceiling rate on export credit in foreign currency. With this, banks are now free to determine their own rate of interest on export credit in foreign currency with effect from May 05.

Moreover, RBI has deregulated the ceiling rate on export credit in foreign currency. With this, banks are now free to determine their own rate of interest on export credit in foreign currency with effect from May 05.

Last November, 2011, the RBI had increased the ceiling rate on export credit in foreign currency by banks to LIBOR plus 350 basis points from the then existing ceiling rate of LIBOR plus 200 basis points.

Impact

This move of RBI may augment the foreign currency inflow to the Indian banks which may in turn facilitate their foreign currency loan to exporter as a result, it will bring rupee liquidity into the market.

Source : Equity Bulls

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