EFTA01379385.pdf

22 December 2017 EM Currency Handbook 2018: Still Fuel in the Tank India Between 1947 and 1975 the rupee was linked to GBP. foreign currency is subject to regulation and caps. FDI Import restrictions and export subsidies were liberalization has been a growing focal point. punctuated with periodic devaluations to address balance of payment crises. Its anchor was switched to USD/INR exchange rate a trade-weighted FX basket, but the central bank (RBI) 70 was forced to devalue the rupee in 1991 and introduce ea a two-tier system of FX. The current regime dates back so to March 1993, when the government reintroduced a unified, market-determined managed float. The Foreign 66 60 Exchange Management Act was introduced in 2000. 45 The monetary framework of the Reserve Bank of India was formerly built on multiple indicators. However, 36 following the recommendation of the Urijit Patel 30 Committee Report, RBI shifted to a consumer price 26 inflation targeting approach in 2014. RBI aimed to zo guide CPI to below 6% by Jan 2016 and below 5% by I5 50 95 05 10 15 March 2017, with a long-term inflation objective of 4%. In 2016, the Finance Ministry officially adopted an inflation target of 4% for the next five years with +/-2% USEVINB spot kite and 3M NDF premium tolerance limits. RBI sets its policy primarily via the repo/reverse repo rate corridor, but supplements it with 76 —INR Spot - 400 liquidity management tools such as the liquidity 70 —INR 3M Forward 19, RHS adjustment facility, cash reserve ratios, open market 66 operations and term repos. In 2016, RBI moved from a 60 long-standing liquidity deficit regime, to targeting liquidity neutrality to encourage greater monetary 66 transmission. RBI also introduced a six-member MPC. 60 100 45 In the early to mid-20005, FX policy was oriented at 40 ensuring that the rupee maintained its competitiveness 36 in inflation-adjusted terms. After the 2008 financial crisis, the current account deficit steadily deteriorated. 30 100 Reserves were not aggressively accumulated in 2009- 09 11 13 15 17 2010, when large inflows led to appreciation. As capital flow volatility began to increase in late 2011 alongside a deepening deficit, the rupee depreciated, often USD/INR 3M historical vs. implied volatility sharply. During the extreme stress of mid-2013, a scheme to incentivize non-resident Indian USD 35, affitasSpread IRHS) —3M Implied deposits inflows was introduced, gold import restrictions were tightened and oil USD demand was managed to curb currency pressure. Since 2013, the current account has dramatically improved; portfolio inflows have been strong; RBI has aggressively built back reserves, and volatility in the currency has been very closely managed. The rupee is convertible for current account transactions, but has restrictions on the capital account. Foreign portfolio investment policy is more liberal for equity than debt, with the latter -5 managed via a quota system. A medium-term 04 06 06 07 08 09 10 11 12 13 14 15 16 17 framework for FPI investment in debt securities was Scent OB abedMidasRoss* oloareeip fl wc LP put in place in 2015, targeting an increase in foreign limits to 5% of the outstanding government debt securities market by 2018. Corporate borrowing in Page 18 Deutsche Bank Securities Inc. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0076821 CONFIDENTIAL SDNY_GM_00223005 EFTA01379385