Rupee strengthens to 95.05 a dollar while forward premiums hit four-year high amid RBI measures

The rupee ended 10 paise stronger at 95.05 a dollar Thursday while forward premiums surged to over four year high in a shallow market.

The one-year forward premium closed to 4.5%, its highest level since January 2022 while some quotes were seen as high as 10%, traders said.

"The market turned completely illquid as the Reserve Bank of India's stern measures forced importers to go on the sidelines," a treasury head with a private sector lender said.


The one-month forward premium closed as high as 8% with the six-month rate ending at 6%.

"It's an irrational market now. People were seen quoting abrupt levels," another person said.

The RBI imposed a 20% cash reserve requirement on large forex derivatives contracts over $2 million. This means banks will have to set aside funds to the extent of their total exposure if the size of the contract exceeds $2 million. This made one-year hedging costlier by about 150 basis points from normal level of 3%, people aware said.

Meanwhile, the spot rupee gained about 2% this week following the central bank's raft of measures aimed at curbing speculative trading. The rupee opened at 94.92 a dollar and went up to 94.85 during the day. Dollar demands at lower levels however pushed the rupee down to settle at over the 95-mark.