RBI to tame Rupee Rise

By SiliconIndia   |   Friday, 28 September 2007, 07:00 Hrs
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New Delhi: The Reserve Bank of India (RBI) has relaxed overseas investment by local companies, mutual funds and individuals in a resolve to pare down the rupee's rise. The rupee, on Wednesday continued to rise and closed at a new nine-year high of 39.70 per U.S. dollar.

The Rupee has risen more than 10 percent this year and nearly two percent in the past week.
The RBI said in a statement that it has increased the cap on overseas investment by Indian mutual funds by 25 percent to $5 billion and allowed local companies to invest up to 400 percent of net worth abroad as against 300 percent previously. It also doubled the amount that individuals can send abroad each year to $200,000.

The RBI's measures aimed at encouraging outflows of funds to help slow the pace of the currency's appreciation include means wherein local companies can now repay overseas loans of as much as $500 million before maturity, compared with an earlier limit of $400 million. Indian firms can also invest as much as four times their net worth in assets abroad.

The rupee gained as foreign investors brought in more dollars to profit from India's booming stock market, which has risen 22 percent this year and broken through the 17,000 mark this week. The total foreign investment in Indian stocks rose to a record $11 billion so far this year, according the Securities and Exchange Board of India (SEBI).

A stronger rupee erodes the competitiveness of Indian exporters, especially the country's hugely profitable information technology companies that thrive on outsourcing orders from the U.S.
Technology shares have been hit in recent weeks, but rose Wednesday following RBI's control measures. Shares of Tata Consultancy Services (TCS)., India's largest software exporter, jumped 3.9 percent to 1,041 rupees, while close rival Infosys Technologies rose three percent to 1,824 rupees.

The RBI's measures are a part of the continuous efforts to lift curbs on currency transactions and create a fully convertible rupee. Its Fuller Capital Account Convertibility Committee has laid out a five-year roadmap to make the rupee fully convertible. India's rupee is only partially convertible, meaning that for most capital account transactions, investment money flowing in and out of the country is subject to approval by the RBI.

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