RBI move on ECB to attract long term funds: BNP Paribas

The Reserve Bank of India’s move to partially relax some of the restrictions imposed on capital outflows aims at attracting slightly longer term capital flows, says Manoj Rane, MD & Head Fixed Income & Treasury - India, BNP Paribas.

The government has to fund the huge current account deficit (CAD) and this step is in line with that objective, he told CNBC-TV18 in an interview. RBI eased ECB norms today allowing companies to use overseas borrowings for general corporate purposes clarifying that there is no intention to restrict bonafide overseas investments. It also said that its August 14 curbs on outward investments will not apply retrospectively. The cental bank had imposed restrictions on capital outflows in a bid to check rupee's volatility. Below is the edited transcript of Rane’s interview with CNBC-TV18 Q: These measures were introduced by the RBI on August 14 to curb the rupee’s volatility. How are you viewing the clarifications that have come in today and what does this mean for the rupee now? A: These clarifications aim at addressing some concerns which were there on capital account that RBI might impose capital restrictions. Even following the prime ministers statement last week it is clear that there are no such plans and investors should not worry about it. On the other hand, as far as ECBs are concerned, it is pretty much in line with overall RBI and government’s attempts to attract slightly longer term capital flows into the country. We do need to fund our current account ultimately and this is pretty much in line with that. Q: Today is a significant day for the rupee because Raghuram Rajan takes over as the RBI governor. Any sentimental impact do you see for the INR or not? A: More than sentiment it is positive things which they have done over the last weeks, it is shaded to a certain extent by what happens in Syria and other market uncertainties. There is also talk of a non resident Indian deposit schemes which might be launched. It is learnt that they were waiting for the governor to take charge before the scheme is launched. We can wait and see but that would also substantially help the currency. Right things are being done by the RBI and the government, hopefully it should start to pay off in the foreseeable future.