The government has said that the value of rupee, which slipped to an all time low of Rs 49.81 to a dollar on Thursday, is set to be less volatile with the pressure on foreign capital inflows easing even as it eased up overseas borrowing norms by lifting end-use restrictions and allowing the funds to be used even for domestic purchases.
The rupee has so far lost about 20 per cent in the current fiscal year.
Economic Affairs Secretary Ashok Chawla said the value of rupee was based upon a number of factors including capital inflows.
“With pressure easing on these parameters, rupee is expected to be less volatile," he said.
On Wednesday the RBI further relaxed the external commercial borrowing (ECB) norms, enabling companies to borrow up to $500 million in a single financial year to spend either in rupees or in foreign currencies under the “automatic route” – a green channel for approvals.
Economists said the move may not yield the desired result immediately and the depreciating pressure on the rupee was likely to continue till the global financial situation improves.
They pointed out that the move is in the right direction but given the tight global liquidity situation at present, the risk appetite among Indian companies to borrow overseas is pretty low.
Mahesh Purohit, director, Foundation for Public Economic and Policy Research said that the global liquidity situation was still grim. “Considering the current scenario, the move may fail to add value. It is good in principle but in practical terms, this is not likely to show any significant result immediately,” Purohit told Hindustan Times.
Credit rating firm Crisil’s principal economist D.K. Joshi pointed out that the move is directed towards easing the supply of dollars in the long term. “We needed to move towards a more flexible ECB regime in any case,” he said.