Indian companies cut dollar purchases used to hedge against rupee weakness to an eight-month low, a sign that the central bank's crackdown on what it called speculative bets against the currency is yielding results. Buying of forward dollars, or commitments by companies to acquire the US currency at a later date, fell 35% in October from a record high the previous month to $49.5 billion, according to clearinghouse data. The figure was the lowest since February and reflects hedging by importers against losses from a weaker rupee.
The drop followed sweeping measures by the Reserve Bank of India last month to defend the rupee as it neared a record low. The steps, which include a China-style foreign-exchange risk reserve, have made it more expensive to build forward dollar positions, helping ease pressure on the rupee even as costly oil continues to strain India's external finances. The currency has since risen about 2% against the dollar.
"These measures reflect the policymakers' discomfort with persistent foreign-exchange pressures, but they remain tactical fixes rather than structural solutions," said Madhavi Arora, chief economist at Emkay Global Financial Services Ltd. The curbs, which build on steps taken in March, show the central bank is increasingly relying on regulatory tools alongside direct market intervention. Even after its recent rebound, the currency remains among Asia's weaker performers this year.
The intervention has also disrupted hedging markets, with activity freezing after the curbs took effect. The cost of buying insurance against rupee weakness rose to multi-year highs last month and remains elevated, potentially reducing foreign investors' appetite for local assets. Overseas investors sold index-eligible bonds worth about $590 million in October, the second straight month of outflows. Exporters have also held back from selling dollars forward, with their sales at $32.2 billion last month, the lowest since May.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing