5 charts that explain why RBI took steps to support rupee and boost forex inflow
India Today
India Today explains why the Reserve Bank of India (RBI) took steps to support the rupee and boost forex inflow.
The rupee fell to a record low, crude oil prices skyrocketed amid growing global concerns, India’s current account deficit widened significantly, and foreign investors flew from the Indian market with bags full of cash. Amid all this, the Reserve Bank of India has announced steps to support the rupee and bring in foreign currency.
The steps include letting foreign investors invest in short-term corporate debt, purchasing more government securities under the fully accessible route, doubling the borrowing limit of domestic companies, and so on.
However, the question remains: Why did the RBI have to take such desperate measures?
Let us try to understand the current situation that forced the central bank to take targeted decisions to support the currency.
The Indian rupee has fallen by five per cent since 2022 began. A dollar equalled Rs. 74.4 in January 2022 and now stands at Rs. 78.1. A weak rupee has severe negative impacts on the economy, such as expensive imports and the weakening trust of foreign investors. The new RBI norms may expand forex funding to help with volatility and global uncertainty.
India’s current account deficit significantly widened to USD 38.7 billion in the last financial year from a surplus of USD 23.9 billion in the year before. A major portion of the current account is formed by the trade balance, and thus, an expensive or higher volume of imports raises the current account deficit.
The RBI hopes that the latest boosting dollar inflows may offset widening current account deficit pressure.