Taking further steps to prop up the sliding rupee,the Reserve Bank of India (RBI) on Thursday asked exporters to sell half the foreign currency in their accounts and made it easier for the market to absorb large foreign exchange transactions. The rupee rose by 94 paise to trade below 52 level intra-day after the RBI move,but pared some of the gains to close at 53.42 against the dollar,still clocking a gain of 42 paise.
The central bank has also fixed limit for intra-day trading of foreign currency by banks. The changes came a day after the rupee posted its weakest close of 53.84 against the dollar on Wednesday. It has been decided that 50 per cent of the balances in the Exchange Earners Foreign Currency (EEFC) accounts should be converted forthwith into rupee balances and credited to the rupee accounts as per the directions of the account holder, the RBI said in a notification. In respect of all future forex earnings,an exchange earner is eligible to retain 50 per cent (as against the previous limit of 100 per cent) in non-interest bearing EEFC accounts,it said. The balance 50 per cent should be surrendered for conversion to rupee balances,it said.
The move will lead to an initial sale by exporters of only $2.5 billion to $3 billion in foreign currency holdings. The RBI will also allow banks to take intra-day currency trading positions that are five times their overnight open position limit,a move which could ease intra-day rupee volatility by increasing market liquidity and giving banks more time to cover big orders. Previously,banks could not exceed overnight limits,although some larger banks had been allowed by the RBI to increase their intra-day positions.
The rupee had a weak opening after closing at all-time low of 53.84 on Wednesday. It rose to 52.90 level intra-day as there was increased selling of dollar by banks and exporters following RBI measures. Dealers said that there was also suspected intervention by the RBI in the forex market.
With this,the RBI is clearly indicating that it does not want to sell the dollar to support the local unit but it prefers policy level actions, India Forex Advisors chief executive Abhishek Goenka said.
EEFC is an account maintained in foreign currency with a bank. It is a facility provided to the foreign exchange earners,including exporters,to credit 100 per cent of their forex earnings to the account. The account holders do not have to convert forex into rupee and vice versa,thereby minimising the transaction costs.