More steps needed to rein in rupee

The rising rupee has brought India one step closer to achieving full capital account convertibility.

In a bid to stem the appreciating domestic currency, RBI has allowed Indian companies to invest up to 400 per cent of their net worth in foreign JVs and wholly owned subsidiaries, up from the present stipulated cap of 300 per cent.

Further, the ceiling on portfolio investments has been raised from 35 to 40 per cent. In addition, individuals can now invest up to $200,000 (Rs 80 lakh) abroad, twice the amount allowed thus far, and the aggregate investment limit for mutual funds has been upped from $4 billion (Rs 16,000 crore) to $5 billion (Rs 20,000 crore).

Yet, the impact of RBI’s latest move might not entirely curb the rupee’s northward march. RBI may still be forced to absorb excess inflows and come up with a definitive exchange rate policy.