The rupee emerged as the best-performing Asian currency on Tuesday, gaining 0.5 per cent and climbing to a one-month high, driven by a series of regulatory measures aimed at curbing speculative bets and likely intervention by the Reserve Bank of India.
The rupee settled at 95.28 per dollar, against the previous close of 95.78 per dollar. The Indian unit gained 1.6 per cent over the last three trading sessions.
“The Indian rupee continued its upward trajectory for the third consecutive session, closing near a one-month high,” said Dilip Parmar, senior research analyst at HDFC Securities.
“The advance was driven by regulatory measures implemented by the RBI to limit volatility and curb speculative trading, along with the unwinding of long positions, general dollar weakness, lower crude oil prices and recovery in the domestic equity,” said Dilip Parmar, senior research analyst at HDFC Securities.
The RBI has announced a series of measures to ease pressure on the rupee, including a dedicated dollar window for state-run oil marketing companies and tighter rules on foreign exchange derivatives. These steps are aimed at reducing spot-market dollar demand and discouraging speculative positions.
While the measures announced on Saturday were aimed at reducing immediate dollar demand in the spot market and restricting derivative positions, the RBI’s latest circular has added to the curbs.
In a late-evening notification on Monday, the RBI restricted non-deliverable derivative contracts (NDDCs) involving the rupee offered to non-residents to hedging purposes only.
“On a review, it has been decided that henceforth, Authorised Dealers shall offer NDDCs involving INR to a non-resident user only for the purpose of hedging,” the RBI said.
The RBI has also mandated a foreign exchange risk reserve (FERR) equivalent to 20 per cent of the notional amount of eligible rupee derivative contracts undertaken by authorised dealers to hedge currency risks on their own assets and liabilities.
The latter requirement has unsettled some bankers over how the reserve is to be operationalised, prompting some lenders to hold back from quoting contracts that involve buying dollars for clients, market participants said. They added that activity remained subdued, with exporters and importers largely undertaking only essential transactions.
“The RBI issued a circular restricting NDF only for Non-Resident user that too only for the purpose of hedging. Also Banks who hedge their own assets and liabilities will also pay 20 per cent FERR for buying dollars,” said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.
“This caused a panic amongst a few bankers who stopped hedging for clients where they are required to buy dollars. There were no further instructions from RBI regarding how FERR is to be operationalised,” Bhansali added.
The Foreign Exchange Dealers’ Association of India (FEDAI), the industry body representing authorised dealers, is taking up these concerns and seeking clarity on how the rules will be implemented.
“We have sought some clarity on how to go about the new requirements because there has to be a uniform practice among all the market participants,” said the treasury head at a state-owned bank.
Forward premiums also saw sharp movements during the session. The one-month forward premium rose to around 7 per cent before easing to 5.66 per cent, while the one-year premium climbed to 4 per cent before declining to 3.65 per cent in the afternoon, amid receiving interest from public sector banks.
“The rupee pair had support at 95 per dollar. A sustained move below this level could open the way towards 94.50 per dollar, though external macroeconomic pressures were likely to limit further gains,” said a market participant.
The dollar index fell 0.2 per cent to 102.3, while Asian currencies were largely range-bound. Moderation in crude oil prices also supported the rupee, although elevated oil costs and persistent foreign portfolio outflows remain risks to a sustained recovery.
www.business-standard.com