RBI’s Decision On Indian Rupee Unable To Restrict Its Fall

Hours after the Reserve Bank of India(RBI) announced arrangements being put in place to facilitate export-import transactions in Indian rupee, the rupee fell to a historical low against the US dollar. It fell 13 paise to 79.58 against the US dollar as the investor sentiment remained cautious about the decision. According to forex traders, a strong American currency and domestic equity losses, coupled with foreign fund outflows and increase in crude oil prices are the main reasons behind the pressure felt by the local currency. The RBI move to settle international business dealings in Indian rupee is expected to promote growth in global trade and inspire interest in the national currency. Despite the setback, the global interest of trading community in the domestic currency refuses to wane. To cash in on this interest, and to counter the multi-directional onslaught on the Indian rupee, the RBI, on Monday, sought the help of banks to make arrangements for use of Indian rupee during transactions between Indian businesses and foreign players. An official RBI release said, "In order to promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in rupee, it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports/imports in rupee." With this facilitation in trade settlement, Indian buyers and sellers can bypass certain orders that didn't allow trade with specific countries in US dollars. For instance, many countries imposed restrictions on Russia after its invasion of Ukraine and the US cut off Russia's access to its currency too. As a result, Indian companies, who wanted to trade with Russia for its lower priced commodities couldn't do so. Now, with the RBI decision, such companies have alternative modes for imports, which means the business can go on as usual. For such deals, Indian banks authorised by the RBI will have to open Special Rupee Vostro Accounts (SRVAs) of the partner trading country's bank. The Indian importers will need to pay for the goods in Indian rupee, which would be credited into the SRVA of the corresponding bank in the partner country. On the other hand, the Indian exporters will receive payment for their goods and services in Indian rupee from the designated SRVA of the correspondent bank/partner country. The RBI needs to be kept in loop regarding any request from a trade partner country bank to open an SRVA with an authorised Indian bank.