India's rupee extended gains on Tuesday after the Reserve Bank of India announced additional measures to support the currency, which faces pressure from high oil prices and foreign investor outflows. The rupee rose as much as 0.8% to 95.0100, following a 1% gain on Monday, as the RBI extended curbs to prevent certain derivative transactions from pressuring the currency. The central bank also backed regulatory measures with direct market interventions.
The rupee is still down more than 5% this year, ranking as one of Asia's weaker performers. Kunal Sodhini of Shinhan Bank stated that currency arbitrage has been neutralized and the fresh restrictions are another step in that direction. The measures are primarily designed to manage market behavior and volatility.
The series of interventions highlights the RBI's resolve to rein in the rupee's weakness after its first interest-rate increase in nearly four years failed to alter the currency's course. Elevated oil prices and persistent foreign outflows from local stocks are keeping policymakers on guard against further depreciation. Late Monday, the RBI restricted offshore rupee-linked derivatives at International Financial Services Centre units to non-residents for hedging purposes and widened the scope of a foreign-exchange risk reserve applicable to banks' assets and liabilities.
These represent the strongest rupee-defense measures since the 2013 taper tantrum episode, with the currency marking fresh lows over the past year.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing