Indian Rupee: RBI curbs speculation as Rupee strengthens – Commerzbank

Commerzbank analysts highlight that the Reserve Bank of India clarified recent derivative restrictions, limiting them to hedging FX risk rather than market-making. The measures target excessive speculation in USD/INR, which had returned near record levels. Following the announcement, USD/INR has fallen by nearly 2% to around 95.00 from 96.70, while India’s exports remain firm and the current account deficit stays below 1% of GDP.

RBI measures support Rupee

"The Reserve Bank of India (RBI) clarified that its recent derivative restrictions will apply only to transactions for hedging FX risk and not for market-making. RBI stated that the foreign-exchange risk reserve will apply to banks’ own assets and liabilities hedged through derivative contracts when they purchase foreign currency against the rupee. RBI added that banks do not need to set aside cash when transactions involve sale of foreign currencies."

"According to RBI, the measure is intended solely for hedging current account transactions, pertaining mainly to export and import flows. The recent measures aimed to curb excessive speculation in USD/INR which had risen back to near record levels. USD/INR has dropped by nearly 2% since the announcement to around 95.00 from the 96.70 level."

"September exports remained firm and grew 23.0% yoy vs 26.1% previously to USD44bn. A key driver was electronic goods which jumped 70.4% yoy to USD5.3bn. Petroleum products also continued to perform strongly and expanded nearly 32% yoy to USD6.2bn. Import growth moderated to 8% yoy to USD74.6bn vs 14.1% previously. This was the slowest in six months."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)