India may tighten capital controls to halt rupee slump, Citi says
A Citigroup report forecasts that the Reserve Bank of India is preparing to tighten capital outflow controls after the rupee weakened 7.2 percent against the dollar in the past six months. Likely measures include lowering individual foreign exchange transfer limits and exporter income repatriation rules.
A Citigroup report by Mumbai strategist Samiran Chakraborty noted that the Indian rupee has weakened 7.2 percent against the dollar in the past six months, hitting 90.4. The Iran war-driven rise in oil prices and the widening current account deficit were listed as the main sources of pressure.
Citi analysts said the Reserve Bank of India is highly likely to take action in two directions in the next two months. The first category involves reducing the annual individual foreign exchange transfer limit under the Liberalized Remittance Scheme from 250,000 dollars to 100,000 dollars. The second category contemplates requiring exporters to repatriate overseas sales income to India within at most 30 days.
Goldman Sachs and JPMorgan analysts see similar scenarios as highly likely. The RBI has yet to confirm a concrete step, but Governor Sanjay Malhotra said in a speech in Pune last week that "structural balance of payments instruments are being evaluated". The BSE Sensex fell 3.4 percent in the past week; foreign portfolio investors have been net sellers of about 8.1 billion dollars since mid-April.
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