RBI Considers Measures to Attract Dollar Inflows Amid Rupee Pressure
RBI explores steps to mobilise dollar inflows amid rising pressure on rupee
Business Standard
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India's central bank, the Reserve Bank of India (RBI), is exploring strategies to attract dollar inflows to support the rupee, which has fallen to an all-time low amid rising oil prices linked to the ongoing conflict in the Middle East. Proposed measures include reviving a deposit scheme for non-resident Indians and eliminating withholding tax on foreign bond investors.
- 01The Indian rupee has fallen 5.5% this year, hitting a record low of 95.33 per dollar.
- 02RBI is considering reviving a 2013 deposit scheme to attract dollar inflows.
- 03Eliminating withholding tax on foreign investors in Indian bonds is also under discussion.
- 04Foreign exchange reserves have decreased from a peak of $728.5 billion to $698 billion.
- 05The ongoing Middle East conflict is exacerbating pressure on the rupee and foreign reserves.
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The Reserve Bank of India (RBI) is actively exploring measures to mobilize dollar inflows as the Indian rupee faces significant pressure, having dropped 5.5% this year to an all-time low of 95.33 per dollar. This decline is attributed to rising oil prices driven by the ongoing conflict in the Middle East, particularly between the US, Israel, and Iran. The RBI's foreign exchange reserves have decreased from a peak of $728.5 billion to $698 billion, raising concerns about the adequacy of reserves to cover imports. Among the strategies being considered is the revival of a deposit scheme for non-resident Indians, which previously attracted about $26 billion in 2013, and the removal of a 5% withholding tax on foreign investments in Indian government bonds to encourage inflows. These discussions highlight the urgency for the RBI to bolster its defenses amid increasing capital outflows and a cautious sentiment among foreign investors.
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The measures being considered by the RBI could stabilize the rupee and strengthen foreign exchange reserves, which may help mitigate the impact of rising oil prices on the economy.
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