RBI move signals strength in economy.
By The American Bazaar Staff
NEW DELHI: The Reserve Bank of India (RBI) has alleviated a number of its restrictions regarding the transfer of money into and out of the country, including raising the remittance cap to $125,000 per year.
Last year, the cap had been reduced to $75,000 because of India’s economic turmoil, which saw the rupee plummet to as low as nearly 70 rupees against a single dollar. Under its liberalized remittance scheme, remittance could previously reach as high as $200,000, but controls were tightened to help stabilize the Indian markets.
Now that that is finally starting to happen, the RBI is relaxing its restrictions on foreign current inflow, bringing remittances back up by $50,000. The RBI has not announced if or when the limit will go all the way back up to $200,000, but the increase is a positive sign that the Indian economy, and the rupee, are back on track after a dismal 2013.
The announcement of the new restrictions came in from RBI Governor Raghuram Rajan in the RBI’s second bi-monthly monetary policy statement of 2014. Other components of the statement include that Indian residents and non-residents will be allowed to carry up to Rs. 25,000 worth of currency notes out of the country (except citizens of Pakistan and Bangladesh), an increase from the Rs. 10,000 it has been in the recent past.
India’s other exchange rates have remained untouched, with a repo rate of 8% and a reverse repo rate of 7%. The Statutory Liquidity Ratio – which is the percentage of gold or government securities banks must have before lending credit to customers – has been dropped marginally to 22.5%, which will take effect by the middle of this month.
This is the first policy statement that the RBI has released since the BJP and Narendra Modi took their places at the head of the Indian government late last month. Modi, who is known for being pro-business, will likely have more to say going forward as India looks to reinforce not just its own economy, but foreign investors’ confidence in it.