The measures announced by the Reserve Bank of India (RBI) on July 6 to boost foreign fund inflows should positively impact flows, with early signs visible that pressure on the rupee's exchange rate is easing, Ajay Seth, Economic Affairs Secretary, said on July 7.
"The RBI has taken massive measures. And you would have seen that in the overseas NDF (non-deliverable forwards) market, the rupee has appreciated. So it has caused impact on sentiment as well as we see it will having positive impact on flows as well," Seth said.
On July 6, the central bank announced a series of measures to boost forex inflows and alleviate pressure on the rupee's exchange rate. These included greater freedom to banks to raise foreign currency deposits from non-residents and lifting of a cap on foreign portfolio investors' short-term investments in government and corporate debt.
However, these measures are temporary and are valid till October. According to Seth, the headwinds causing the rupee to weaken are also temporary and are seen subsiding over time. As such, "considering the nature of challenges, the measures are also transitory," the economic affairs secretary said.
The RBI's decisions came in the wake of the rupee hitting successive record lows over the past few days, with July 5 seeing an all-time low of 79.36 per dollar. The Indian currency has weakened by 4.5 percent against the dollar so far in FY23 amid global recession risks, high risk aversion, and large policy spill-overs. Analysts at Nomura have predicted the currency may fall to 82 per dollar by the end of 2022.
The immediate impact of the RBI's steps has not been significant, with the rupee closing just 12 paise higher at 79.18 per dollar on July 7, as per Bloomberg data. Experts also don't see the steps having much of an impact.
Commenting on the global economic scenario and talk of a global recession amid tightening of monetary policies, Seth said it was important to not react to any single data point but keep track of the trend.
"If you recall in May, except for crude, other commodity prices were cooling off from the high peak of April. So we will have to see what the trends are in the future. At the same time, look at what central banks across the globe are trying to do because inflation is pretty high and they are trying to cool it down. And the cooling down (of inflation) has to have an impact. But the expectations are that it will lead to a cooling down (in growth) but not a recession. It is too early to jump to those conclusions," Seth said.On July 7, the head of the International Monetary Fund said the outlook for the global economy had "darkened significantly" since April and a possible global recession next year could not be ruled out.