Rupee logs biggest gain in 12 years

The Indian rupee strengthened nearly 1.8% on Thursday to close at 93.10 against the dollar after the Reserve Bank of India tightened rules on speculative bets on the currency. The rupee touched an intraday high of 92.83 per dollar, logging its best singleday gain since September 2013.

The currency gained 173 paise from its previous close of 94.83 per dollar. The rupee is expected to trade in the 92.5093.50 range next week as banks unwind their net open positions, traders said. Currency markets will stay shut on Friday due to Good Friday. The RBI has directed lenders to pare open positions to $100 million by April 10. Once the deadline passes, further depreciation is expected, though at a slower pace.

“Importers today got a great opportunity to hedge their payables at stronger levels, and this pushed near-term premiums higher,” said Anil Bhansali, head of treasury at Finrex Treasury Advisors.

‘Chances of Relaxation Slim’

“Importers who covered early in the NDF (non-deliverable forwards) market got even better levels, as the rupee was at 92.61 per dollar,” said Bhansali.

The rupee opened at 93.54 per dollar and saw a volatile session, trading between 93.65 and 92.82, as oil companies and importers bought dollars, while banks and corporates sold the US currency.

“But the amount of appreciation seen today was not in tandem with bond yields and oil prices, which makes me think the move was driven not just by RBI measures but also by intervention from the central bank,” said Sajal Gupta, head of forex and commodities at Nuvama.
Late on Wednesday, the RBI barred banks from offering rupee non-deliverable forwards to both resident and overseas clients and said companies would not be allowed to rebook cancelled forward contracts. The move followed the imposition of a $100 million limit on banks’ net open foreign-exchange positions in the onshore market.

“Further policy changes by the RBI and the government to manage rupee weakness could be likely,” MUFG Bank said in an April 2 report. “The RBI appears quite serious about following through on the new regulations to control INR weakness, and the chance of relaxation looks much lower, even though some tweaks remain possible.”