Mumbai:  The Reserve Bank of India (RBI) on Monday announced a series of measures, including raising limits for external commercial borrowings and government securities, that would help revive the battered currency and the economy.

The Reserve Bank of India said in a statement that it has taken measures in consultation with the government to liberalise capital account transactions.

It has been decided to allow Indian companies in the manufacturing and infrastructure sector and earning foreign exchange to avail of external commercial borrowing (ECB) for repayment of outstanding rupee loans towards capital expenditure and/or fresh Rupee capital expenditure under the approval route, the RBI said.

"The overall ceiling for such ECBs would be USD10 billion," the central bank said.

The existing limit for investment by Securities and Exchange Board of India (SEBI) registered foreign institutional investors (FIIs) in government securities (G-Secs) has been enhanced by a further amount of USD5 billion.

This would take the overall limit for FII investment in G-Secs from USD 15 billion to USD 20 billion.

"In order to broad base the non-resident investor base for G-Secs, it has also been decided to allow long term investors like Sovereign Wealth Funds (SWFs), multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks to be registered with SEBI, to also invest in G-Secs for the entire limit of USD 20 billion," the RBI said.

The sub-limit of USD 10 billion (existing USD 5 billion with residual maturity of 5 years and additional limit of USD5 billion) would have the residual maturity of three years.



"Well not the 'shock and awe' the market was looking for but we shall see what else gets announced. Not surprised to see USD/INR higher.

"Until they address longer term structural issues around capital flows and competitions in the domestic retail sector which can help bring down inflation pressures, I think market will be left disappointed."


"The market was expecting a slew of measures. The measures announced now won't have any direct material bearing on the rupee. Unless the RBI comes in with more measures, the rupee will fall back to the 57-58 to a dollar levels."


The Indian rupee posted its worst weekly fall in nine months last week, having slumped to a record low of 57.32 against the U.S. dollar on Friday,  hurt by dollar demand from oil firms and gold importers as well the broad risk-off sentiment.

The Reserve Bank of India left interest rates unchanged last week,  defying widespread expectations for a rate cut as it warned that doing so could worsen inflation, disappointing markets.

Economy has been slowing sharply due to a combination of factors such as high borrowing costs, government inaction on key policies and sluggish global environment.

Standard & Poor's has said that India could become the first of the so-called BRIC economies to lose its investment-grade status, less than two months after cutting its rating outlook for the country.

FACTBOX-Steps taken by govt to support rupee

Industrial output rose just 0.1 percent in April, lower than expectations in a news agency poll for a 1.7 percent increase. Output fell in March from a year earlier by 3.5 percent.

Economic growth slowed to 5.3 percent in the March quarter, its weakest pace in nine years and sharply off 9.2 percent rise in the year-earlier period.

Price pressures remain high with the wholesale price inflation accelerating to 7.55 percent in May from a year earlier, driven by double-digit rises in food and fuel prices.

Indian rupee weakens; economic measures disappoint

The Indian rupee and benchmark stock indexes trimmed gains after the Reserve Bank of India announced it would raise investment limits in government bonds, disappointing investors who had expected bolder measures.

At 2:39 pm Mumbai time, the rupee was at 56.96/97 to the dollar, weakening from 56.55 levels before the announcement.

The currency was still up on the day, after closing at 57.12/13 on Friday, and still well above its record low of 57.32 hit in the previous session.

India's benchmark indexes erased earlier mild gains to fall, with the main BSE index down 0.2 percent.


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