India’s central bank rolled out a series of measures to support the sliding rupee in its strongest action since the country’s currency crisis in 2013.
The steps include opening a special window to meet state-run oil companies’ 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 for some foreign exchange transactions.
The RBI’s surprise announcement on Saturday is expected to bolster the rupee, Asia’s worst-performing currency this year, which closed on Friday slightly above its record low of 96.9650 per dollar. 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’s reserves contracting $51 billion in the four weeks to Oct. 2.
“The RBI’s measures represent a virtual shutdown of the market,” said Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors in Mumbai. “The dollar demand from hedging and from the oil companies will now exit the market plus there are severe restrictions on export and import activities. We should see at least a 1% rally in the rupee on Monday.”
The currency closed 0.6% higher in offshore trading in New York after the steps were announced.
The three government oil companies will be able to use the facility to access dollars from Monday, the RBI said in a statement. The RBI will undertake the sales to Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp. through designated lenders, it said.
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 $2 million.
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India’s central bank rolled out a series of measures to support the sliding rupee in its strongest action since the country’s currency crisis in 2013.
The steps include opening a special window to meet state-run oil companies’ 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 for some foreign exchange transactions.
The RBI’s surprise announcement on Saturday is expected to bolster the rupee, Asia’s worst-performing currency this year, which closed on Friday slightly above its record low of 96.9650 per dollar. 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’s reserves contracting $51 billion in the four weeks to Oct. 2.
“The RBI’s measures represent a virtual shutdown of the market,” said Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors in Mumbai. “The dollar demand from hedging and from the oil companies will now exit the market plus there are severe restrictions on export and import activities. We should see at least a 1% rally in the rupee on Monday.”
The currency closed 0.6% higher in offshore trading in New York after the steps were announced.
The three government oil companies will be able to use the facility to access dollars from Monday, the RBI said in a statement. The RBI will undertake the sales to Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp. through designated lenders, it said.
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 $2 million.
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It will work this time they say