RBI steps to curb rupee volatility will boost growth: Assocham

I am confident that curbing of volatility in Rupee will impart macro financial stability, says Rana Kapoor

Targeted monetary measures by the Reserve Bank alongwith short-term restrictions on capital outflows to curb the volatility in the rupee are likely to boost the country's growth prospects considerably by January next year, industry body Assocham said today.

"I am confident that curbing of volatility in Rupee will impart macro financial stability and improve India's medium- term growth outlook considerably by January 2014," Assocham President Rana Kapoor said in a statement.

In the current context, the combination of transient and targeted monetary measures alongwith short-term restrictions on capital outflows will eventually buffer the Rupee, with support from government measures to attract capital inflows, he added.

Amid continuing pressure on the rupee, the RBI last week announced stern measures, including curbs on Indian firms investing abroad and a reduction of outward remittances, to restrict the outflow of foreign currency.

The central bank reduced the limit for overseas direct investment (ODI) by domestic companies, other than oil PSUs, under the automatic route from 400% of net worth to 100%. However, Oil India and ONGC Videsh were exempt from this limitation.

Terming the recent turbulence in the country's foreign exchange markets as an "overreaction" to Federal Reserve's signal of tapering its ongoing quantitative easing, Kapoor said: "Currently, although the policy intent (of the RBI) is towards targeted monetary and liquidity tightening, the tools adopted have been unconventional".

As part of the measures taken last week to stem the fall in the rupee, RBI also reduced the limit for remittances made by resident individuals under the liberalised remittances scheme (LRS) from $2 lakh to $75,000 a year.

Resident individuals were, however, allowed to set up joint ventures or wholly owned subsidiaries outside under the ODI route within the revised LRS limit.

Moreover, the central bank notified that incremental non-resident deposits (FCNR and NRE) with a maturity of three years and above will be exempt from maintenance of statutory balance with the central bank.

Despite these steps, continuing its slide, the rupee today breached 64-mark against dollar by falling 98 paise to trade at record low of 64.11 on persistent dollar demand and a weak opening in the domestic equity market.