RBI announces measures to attract capital inflow

Reserve Bank of India today came out with a slew of measures to boost capital inflow into the country, aimed at support the free fall of the rupee.

The central bank has raised the external commercial borrowing limit to $10 billion and increased the foreign institutional investors’ investment limit in government securities by $5 billion to $20 billion.

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Those sovereign wealth funds, multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks registered with SEBI, can also invest in government bonds for the entire limit of $20 billion.

Qualified foreign investors (QFIs) can now invest in those mutual fund (MF) schemes that hold at least 25 percent of their assets (either in debt or in equity or both) in the infrastructure sector under the current $3 billion sub-limit for investment in mutual funds related to infrastructure.

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According to a KPMG report, QFIs are persons resident in a country that is compliant with financial action task force (FATF) standards; and signatory to International Organization of Securities Commission’s (IOSCO) multilateral memorandum of understanding (‘MOU’).

The Indian rupee and benchmark stock indexes trimmed gains after the Reserve Bank of India announced it would raise investment limits in government bonds, disappointing investors who had expected bolder measures.

At 2:39 pm Mumbai time, the rupee was at 56.96/97 to the dollar, weakening from 56.55 levels before the announcement. The currency was still up on the day, after closing at 57.12/13 on Friday, and still well above its record low of 57.32 hit in the previous session.

India’s benchmark indexes erased earlier mild gains to fall, with the main BSE index down 0.2 percent.

With inputs from Reuters