NEW DELHI: India\u2019s central bank has rolled out a series of measures to support the sliding rupee in its strongest action since the country\u2019s currency crisis in 2013.<\/p>\n
The steps include opening a special window to meet state-run oil companies\u2019 dollar requirements, and the introduction of a new China central bank-type tool requiring banks to set aside cash with the Reserve Bank of India (RBI) for some foreign exchange transactions.<\/p>\n
The RBI\u2019s surprise announcement last Saturday is expected to bolster the rupee, Asia\u2019s worst-performing currency this year, which closed last Friday slightly above its record low of 96.9650 per dollar.<\/p>\n
The exchange rate has been under constant pressure even with the central bank raising interest rates and selling dollars to stem the slide, with the authority\u2019s reserves contracting US$51bil in the four weeks to Oct 2.<\/p>\n
\u201cThe RBI\u2019s measures represent a virtual shutdown of the market,\u201d said Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors in Mumbai.<\/p>\n
\u201cThe dollar demand from hedging and from the oil companies will now exit the market plus there are severe restrictions on export and import activities.<\/p>\n
\u201cWe should see at least a 1% rally in the rupee on Monday.\u201d<\/p>\n
The currency closed 0.6% higher in offshore trading in New York after the steps were announced.<\/p>\n
The three government oil companies will be able to use the facility to access dollars from today, the RBI said in a statement.<\/p>\n
The RBI will undertake the sales to Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp through designated lenders, it said.<\/p>\n
The new foreign exchange risk reserve will require lenders to maintain with the central bank a holding of the rupee equivalent of 20% of the notional amount of each derivative transaction that exceeds US$2mil.<\/p>\n
Other new regulatory steps include prohibiting dealers from re-booking canceled foreign-exchange derivatives involving the rupee.<\/p>\n
The RBI also reduced the limit for forex derivative transactions without establishing the existence of the underlying asset to US$5mil from US$100mil.\u00a0<\/p>\n
The central bank\u2019s latest steps echo actions it took in 2013 when it introduced a dollar window for oil companies and provided about US$12bil to refiners to help stabilise the currency.<\/p>\n
The foreign exchange risk reserve, however, is a new measure.\u00a0<\/p>\n
\u201cTaken together, this is the most comprehensive set of currency-market measures since 2013,\u201d said Anindya Banerjee, head of research, commodity and currency derivatives at Kotak Neo.<\/p>\n
Still, economists warn that the country\u2019s balance of payments will have to undergo structural improvement for pressure on the rupee to ease more.<\/p>\n
Foreigners have pulled out over US$30bil from local equities this year amid a move toward artificial intelligence-led markets.<\/p>\n
\u201cThis is a short-term fix, not a structural solution,\u201d said Radhika Piplani, economist at Motilal Oswal Financial Services Ltd.<\/p>\n
\u201cHigh crude prices, capital outflows and underlying dollar demand remain key risks.<\/p>\n
\u201cThe measures may buy the RBI time, but a sustained rupee recovery will require an improvement in these fundamentals.\u201d<\/p>\n
Earlier this year, the RBI limited daily net open positions for banks at US$100mil and banned lenders from offering non-deliverable contracts involving rupee to clients, which it later rolled back.<\/p>\n
In June, the authority removed taxes on bond investments by foreigners and unveiled its diaspora deposit programme, which raised US$133bil.\u00a0<\/p>\n
The rupee closed 0.1% higher at 96.7350 to the dollar in Mumbai last Friday, slightly stronger than its lowest-ever level recorded in May. The currency has declined more than 7% this year. \u2014 Bloomberg<\/p>\n","protected":false},"excerpt":{"rendered":"NEW DELHI: India\u2019s central bank has rolled out a series of measures to support the sliding rupee in…\n","protected":false},"author":2,"featured_media":930039,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[45,49,48,7897,46,1799,33642,61270],"class_list":["post-930038","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-ca","tag-canada","tag-currency","tag-economy","tag-india","tag-rbi","tag-rupee"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/930038","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=930038"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/930038\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/930039"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=930038"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=930038"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=930038"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}