Rupee settlement will help India trade with Russia, Iran and South Asian neighbours, experts say

An India Rupee note is seen in this illustration photo June 1, 2017. REUTERS/Thomas White/Illustration

MUMBAI, July 12 (Reuters) - The Indian central bank's decision to let importers pay with rupees and exporters be paid in rupees is likely to make trade easier with Russia and South Asian neighbours, and will help a long term goal to internationalise the currency, experts said.

On Monday, the Reserve Bank of India said it had put in place a mechanism for international trade settlements in Indian rupees (INR) with immediate effect. read more

The RBI said that "in order to promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in INR, it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports/imports in INR."

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"This step can be particularly useful for neighbouring countries, and also those countries willing to use the rupee as a base currency for trade diversification in their settlement rules," said Rahul Bajoria, chief India economist at Barclays.

Engineering Export Promotion Council chairman Mahesh Desai noted the new mechanism "would facilitate trade with countries under sanctions, like Iran and Russia."

Trade between India and Russia has come to a virtual standstill due to sanctions imposed on Russia over the war in Ukraine.

The new steps allow Indian exporters and importers to use special Rupee Vostro Accounts to settle trade denominated in rupees, and banks will need the RBI's approval to use the settlement system.

"We see this as a first step towards 100% convertibility of rupee," Desai said, noting it would also reduce currency fluctuation risks for importers and exporters.

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Reporting by Swati Bhat and Nupur Anand; Additional reporting by Manoj Kumar; Editing by Simon Cameron-Moore

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