The slew of measures announced by Reserve Bank of India (RBI) on Wednesday, 6 July, to enhance foreign exchange inflows should help rupee to outperform its peers in emerging market economies, experts said.
The central bank has raised overseas borrowing limits for companies and liberalised norms for foreign investments in government bonds, among other measures.
Vivek Kumar, Economist at QuantEco Research, said that persistent pressure on rupee has prompted the central bank to diversify its defence strategy by including macro prudential steps to encourage foreign inflows.
"We believe it would further help in rupee to outperform its peers in emerging market economies. However, it is unlikely to change the adverse global backdrop of strong dollar, heightened geopolitical uncertainty, and still somewhat elevated commodity prices...," he said.
Meanwhile, Suvodeep Rakshit, senior economist at Kotak Institutional Equities said, "While it is difficult to ascertain the quantum of flows, the measures are attractive for banks and FPIs," Reuters reported.
Commenting on RBI's announcement, Dilip Parmar, Research Analyst at HDFC Securities, said the actions will have a positive sentimental impact in the short term but will have a marginal positive impact over the medium term.
"However, for sustainable dollar inflows, global as well as domestic stability in growth and inflation is needed," Parmar said.
'Help Counter Outflow of Dollars'
Abhishek Goenka, CEO of IFA Global, said, that in a nutshell, RBI has tried to boost short-term dollar inflows with the latest measures.
The Indian rupee, RBI said has depreciated by 4.1 percent against the US dollar during the current financial year so far (up to 5 July), which is modest relative to other EMEs and even major Advanced Economies (AEs).
Shravan Shetty, Managing Director of Primus Partners, said with US dollar hitting a 20-year high, the current policy initiatives will help reduce the impact of a higher cost of borrowing driven by rising inflation.
"These measures by RBI will help counter the outflow of dollars seen across asset classes while providing access to capital at a cheaper cost alleviating the impact of higher domestic interest rates," he said.
In its statement, RBI said the global outlook is clouded by recession risks.
On Wednesday, the rupee surged 39 paise, its best single-day gain in over three months, to close at 78.94 against the US dollar after a sharp correction in crude oil, FIIs repositioning in capital markets and strong gains in local equities.
The central bank has also allowed banks to raise deposit rates for non-resident Indians (NRIs) to levels higher than prevailing domestic deposit rates for a limited period.
Radhika Rao, economist at DBS Bank, said, "These measures, including raising the borrowing limits for companies as well as liberalising offshore ownership in government debt, are intended to ease onshore dollar tightness and support the rupee."
(With inputs from PTI)