India's central bank, the Reserve Bank of India's (RBI's) move to boost the Indian currency is being seen as a desperate move by analysts.
The move comes amid continuing fall of the Indian rupee due to absence of government polices to boost investor sentiment among foreign investors. Experts say that the government's inaction to address the issue has forced the RBI to take steps to control the fall in the national currency.
Experts have said that the policy of the Reserve Bank of India to requiring exporters to repatriate half their foreign currency will not only push away investors but it will also be ineffective in controlling the fall of the rupee against other currencies.
According to the bank's estimates, the new rule will bring back $2.5 to $3 billion of capital. The figure is small compared to India's $185 billion annual trade deficit. The move will make exports avoid building up cash balances.
RBI has taken several steps to control the continuing fall of the rupee against the US dollar in recent days. The central bank will aim at halting the fall in the value of the rupee by market intervention and measures to attract dollars. The move comes at a time when rupee lost 47 paise against the American currency in intra-day trade.
RBI's steps include hiking interest rates on dollar-denominated foreign currency non-resident (banks) deposit schemes and allowing exporters to easily get foreign currency loans. Under the current rules, interest rates on FCNR (B) deposits were limited to 125 basis points above the prevailing Libor/Swap rates.