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Interest Subvention increased to 3% for Exporters

In a bid to boost exports and attract dollars the Reserve Bank of India (RBI) has decided to increase the rate of interest subvention on pre and post shipment rupee export credit for certain employment oriented export sectors to 3% from August 1 compared with 2% earlier.
RBI has accordingly asked banks to reduce the interest rate chargeable to the exporters as per base rate system in the existing sectors eligible for export credit subvention by the amount of subvention available subject to a floor rate of 7%. “Banks may ensure to pass on the benefit of 3% interest subvention completely to the eligible exporters,” said RBI.
However, these measures will take time to show its positive impact on the rupee. “We can expect these steps to have an impact on the rupee few months down the line. Immediately it won't help,” said a currency dealer with a public sector bank.
The rupee again breached the Rs 64 mark per dollar as month-end dollar demand from importers continued.
 Besides that there are concern that a slowing economy will make it tougher to attract investments from Foreign Institutional Investors (FIIs) as the US Fed prepares to unwind stimulus.
The rupee ended at Rs 64.31 per dollar on Monday compared with previous close of Rs 63.35  a depreciation of 1.52 %. During intra-day trades it touched a high of Rs 63.65 and a low of Rs 64.75. It had opened the day at Rs 63.39.
Last week the rupee had touched an all-time low of Rs 65.56 against the dollar after Federal Reserve minutes hinted tha
t US was on course to start tapering stimulus which could be as early as next month.
Currency experts believe that the rupee may fall further in the near-term. “Current volatility and weakness, leading to fragile sentiment, have driven the currency to uncharted territory. In such an environment the rupee could test further new lows with heightened volatility. That's why market participants are reluctant to make near-term forecasts. However, we believe that current levels reflect the realistic value of the currency,” said Rajesh Cheruvu, chief investment officer – India, RBS said in a note to clients.
Tracking the weak rupee government bond yields rose during the day. The yield on the 10-year government bond 7.16% 2023 ended at 8.34% compared with previous close of 8.26%.
 But the auction of 48-days cash management bills for a notified amount of Rs 11,000 crore sailed smoothly on Monday despite liquidity crunch still prevailing in the system. The cut-off yield was at 11.8936%.

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