(Updates with comment from trader in fourth paragraph.)
Nov. 23 (Bloomberg) -- India’s central bank raised the limit on interest rates paid by the nation’s companies on overseas borrowings maturing in five years or less, according to an e-mailed statement from the Reserve Bank of India today.
The central bank’s move, announced after close of trade, may help boost foreign-exchange supply in the financial system and help temper the rupee’s slide to a record closing low today.
Borrowers can now pay a total of as much as 350 basis points, or 3.5 percentage points, over the London Interbank Offered Rate for loans longer than three years and up to five years. The ceiling was raised from 300 basis points. The central bank kept the cap on rates for overseas loans of more than five years unchanged at 500 basis points over Libor.
“The Reserve Bank’s move enables companies to attract investors by offering wider spreads,” said Krishnamurthy Harihar, treasurer at FirstRand Ltd. in Mumbai.
The rupee fell as much as 0.5 percent to 52.57 before closing at 52.375 per dollar in Mumbai, according to data compiled by Bloomberg. It touched an all-time low of 52.73 per dollar yesterday.
The central bank earlier today relaxed rules for currency swaps to stem the rupee’s slide, the worst performer among Asian currencies this year.
The regulator aims to counter “sharp” movements in the rupee, Deputy Governor Subir Gokarn told reporters in Paris today.
The rupee has declined 7.6 percent so far in November, heading for the worst monthly decline since 1992, as Europe’s sovereign debt crisis led investors to sell emerging-market assets in favor of the relative safety of the dollar. The Dollar Index, which tracks the currency’s performance against that of six major trading partners, rose 3.5 percent this month.
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