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Rajan's key measures to stabilise the rupee and its impact

Raghuram Rajan – the new Reserve Bank of India (RBI) governor – has announced a slew of measures to attract capital flows in the country to provide support to the rupee which has depreciated around 22% in the current financial year.

Here are the 4 key steps and their expected impact:

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Rajan's key measures to stabilise the rupee and its impact

Measures        

Swap window to banks for fresh FCNR(B) Dollar funds mobilized for at least 3 years at a fixed rate of 3.5% p.a          

Objective        

Boosting forex reserves

Impact

Banks can raise FCNR (B) deposit around 2.5 % cheaper than market rate; $10 billion inflows likely

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Rajan's key measures to stabilise the rupee and its impact

Measures

Overseas borrowing limit of banks has been raised from 50% of unimpaired Tier I capital to 100%       

Objective

More room for banks to raise overseas funds   

Impact

Banks will have the headroom to raise around $ 30 billion

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Rajan's key measures to stabilise the rupee and its impact

Measures

Exporters can rebook cancelled forward exchange contracts to the extent of 50%, importers to the extent of 25%

Objective

Increase depth of FX market, aid operational ease       

Impact

Exporters, importers will have greater flexibility in foreign risk management

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Rajan's key measures to stabilise the rupee and its impact

Measures

RBI will issue inflation indexed savings certificate linked to the new CPI index

Objective

Attract domestic household savings      

Impact

Encourage household savings, which dropped to an 11-year low in FY12 and reduce structural pressure on current account gap.