RBI holds rates while announcing measures to attract foreign capital

The Reserve Bank of India (RBI) kept its benchmark repo rate unchanged at 5.25% and unveiled a package of measures to attract foreign capital and bolster the sliding INR, as per an RBI press release.

Neutral it is: The RBI’s monetary policy committee unanimously voted to maintain rates and retain its “neutral” stance, citing an increasingly uncertain global environment. Policymakers preferred to wait for greater clarity on inflation and growth before considering any policy shift, RBI Governor Sanjay Malhotra said.

Tax breaks + USD incentives: Alongside scrapping capital gains tax and interest withholding tax on foreign investments in government securities, the RBI also announced concessional FX swaps for state-owned firms raising overseas debt and said it would compensate banks for hedging costs on select foreign-currency deposits from non-resident Indians.

Why it matters: The RBI has opted against following regional central banks in raising rates, instead deploying targeted measures to strengthen India's capital account. Economists estimate the combined measures could attract between USD 40 bn and USD 60 bn of additional inflows.

RBI broadens foreign investment channels

Diaspora + overseas funding sway: The RBI relaxed certain concentration and short-term holding restrictions, making India's sovereign debt market more accessible to global funds. It also raised investment limits for non-resident Indians in listed Indian equities without needing registration with the market regulator. The facility has been extended to all individual investors residing outside India.

Plus, an export cushion: The RBI also restored the deadline for exporters to repatriate export earnings to nine months, from the temporary 15-month window introduced earlier. Together with the state’s decision to eliminate capital gains and interest taxes on foreign investments in government bonds, the measures are part of a coordinated effort to strengthen India's balance of payments, attract fresh USD inflows and stabilize the INR without resorting to interest-rate increases.