Mumbai: The rupee snapped five weeks of losses after the government eased rules for companies borrowing overseas, encouraging more capital inflows.
The currency rose to the highest in more than two weeks after a government report showed the economy expanded faster than economists expected in the three months through March.
The government also doubled the limit on the amount of Indian debt overseas investors can hold. An increase in funding from abroad will boost the supply of foreign exchange in the local currency market and help cut import costs, said Rohan Lasrado, a trader at HDFC Bank Ltd.
“The impact of the currency’s recent move was being felt on inflation, which may have prompted the move,” Mumbai-based Lasrado said. “Since inflation is the priority of the authorities, there is optimism the currency appreciation route will be used to tackle the issue.”
The rupee climbed 0.8% to 42.45 a dollar at close in Mumbai, from 42.78 on Thursday.
The government increased the limit on overseas borrowings by infrastructure companies to as much as $100 million (Rs426 crore) from $20 million. The limit for other companies was raised to $50 million from $20 million.
Global funds can buy up to $5 billion of government bonds and $3 billion of corporate bonds, the government said, raising the caps from $3.6 billion and $1.5 billion, respectively.
Policymakers are seeking more inflows from overseas as the rupee slid more than 4% in May to a 13-month low after crude oil advanced to a record, increasing import costs for Asia’s third biggest economy. Global funds sold $3.5 billion more of local shares than they bought this year, a record.