RBI Intervenes To Tame Free-Falling Rupee; Announces Slew Of Measures

To curb the rupee's free fall which has slid to 79 levels against the greenback, RBI has reportedly stepped in and announced a number of steps for diversifying the source of forex funding in order to handle the large scale volatility.

"The global outlook is clouded by recession risks. Consequently, high risk aversion has gripped financial markets, producing surges of volatility, sell-offs of risk assets and large spillovers, including flights to safety and safe haven demand for the US dollar," the RBI said in a release. "As a result, emerging market economies (EMEs) are facing retrenchment of portfolio flows and persistent downward pressures on their currencies."

The apex bank has exempted incremental FCNR(B) as well as non-resident(external) or NRE deposits for calculation of net demand as well as time liabilities for maintaining CRR and SLR. An FCNR account is for those individuals who wish to maintain deposits in a foreign currency. The said leeway is for a limited time period until November 4. Further RBI made the clarification that deposits transferred from NRO account to NRE shall not be eligible for the said leeway.

Also, fresh deposits under FCNR (B) and NRE deposits can be mobilised with any restriction on interest or without adhering to current guidelines in respect of interest rate. This offer shall be available from today i.e. July 7 and up to October 31.

Notably these steps are taken as the rupee has been plunging to fresh lows each day. And with the global economic outlook turning feeble, there is risk off sentiment and amid it emerging market assets are seeing a negative impact. There is continued FII outflow from the country and there is a threat that the record trade deficit shall sustain.

There is a view that even if the outflow gains pace, RBI is well positioned to offset that as it targets to maintain the performance of rupee against other EM currencies.

On the previous day, RBI informed that it has 'adequate level' of forex to act as a cushion against foreign shocks. As per the RBI, rupee so far in Fy23 has collapsed by 4.1% and is hence at a better standing in comparison to other EM and advanced economies' currencies.