As Raghuram Rajan-effect takes hold, inflows through special US dollar swap windows touch $17.

5 bn, FinMin expects $25 bn

PTI | Mumbai | Updated: Nov 12 2013, 13:37 IST SUMMARYGovernor

Raghuram Rajan offered a sentiment booster and backed it up with action on ground leading to revival of rupee.
The Reserve Bank of India (RBI) today said it has received USD 17.5 billion so far through the two special windows for swapping foreign currency non-resident (banks) deposits and overseas foreign currency borrowings by banks. The central bank operationalised these special windows on September 4 to prop the rupee. which had fallen close to 30 per cent between April and August. The window will remain open till November 30 - Raghuram Rajan taking over at the RBI as Governor spurred revival. The special widow allows banks to swap the fresh FCNR (B) dollar funds, mobilised for a minimum tenor of three years and over, at a fixed rate of 3.5 per cent per annum for the tenor of the deposit. The RBI also allowed banks to borrow up to 100 per cent of tier I capital from overseas, which can be swapped with the central bank at a concessional rate of 100 basis points below the ongoing swap rate prevailing in the market. The rupee has gained nearly 11 per cent from September till date on account of higher dollar inflows and other measures taken by the RBI and the government. On November 6, the RBI said that it had received USD 15.2 billion from the special concessional window. Many analysts have pegged inflows from these instruments to be in range of USD 20 to 25 billion. The rupee was the worst performing Asian currency between end-May and September 3, losing close to 30 per cent from the beginning of the fiscal. Between April 2 and today, the rupee is still down over 16 per cent. These two windows, coupled with the one for oil companies under which RBI directly sells dollars to them, apart from the sentiment booster that new Governor Raghuram Rajan offered in his inaugural address, have been the main reasons for the massive recoup of the rupee. In September alone, the rupee had rallied more than 10 per cent. However, today the unit plunged more than 60 paise to one-month low against the dollar at 60.03 in opening trade. This was on renewed fears that the US Fed would look at scaling back its stimulus soon as the latest US data showed the world's largest economy is clawing back faster than expected. In fact, the plight of the rupee started after the US Fed in its May 24 meeting hinted at shutting in a phased manner the easy money tap-repurchase of USD 85 billion worth of T-bills every month. This had led to a spike in US interest rates, enticing FIIs to plumb for better returns back home by exiting emerging markets.

This had led to scary situation on the already high current account position in the country, leading to battering of the rupee. As a result, FIIs had sold domestic debt worth more than USD 13 billion between the May-end Fed warning and early September and a couple of billions in stocks. FinMin expects $25 bn inflows via swap windows by Nov-end The Finance Ministry expects inflows of USD 25 billion by November end through forex swap windows opened by the Reserve Bank to attract deposits from non-resident Indians and allow banks to borrow overseas. "Till November 30, our (FCNR-B) window is open. We might even touch USD 25 billion," Economic Affairs Secretary Arvind Mayaram told reporters here today. Until yesterday, the RBI had received USD 17.5 billion through the special windows for swapping foreign currency non-resident (bank) deposits and overseas foreign currency borrowings by banks. Both were started on September 4 to prop up the rupee, which had fallen almost 30 per cent between April and August. Referring to the recent decline in the rupee against the dollar, Mayaram said, "I think a crazy, irrational kind of a sentiment is (prevailing in the forex market)." Continuing its slide for the fifth straight day, the rupee today lost 23 paise to trade at 63.47 on strong dollar demand from importers. To a query on the impact of the expected US Federal Reserve's withdrawal of its fiscal stimulus, Mayaram said, "When the taper begins, you will see nothing will happen." The battering of the rupee started in May, after the US Fed hinted at shutting its monthly USD 85 billion bond purchase programme in a phased manner. The rupee fell to a record low of 68.85 to the dollar on August 28 and recovered on optimism the Fed would delay tapering its bond buying program. The local currency started weakening again last week. Mayaram had earlier said dollar purchases by oil companies had partially shifted to the market from a special swap window opened for them by the RBI.