India's Reserve Bank of India is deploying its strongest measures since the 2013 taper tantrum to steady the rupee, which neared a record low early Saturday. The central bank opened a dollar window for state-owned oil refiners and introduced a 20% reserve requirement for foreign-exchange derivatives above $2 million, mirroring China's approach. These steps follow a rate hike on Wednesday and aim to defend the critical 97-per-dollar level.
Despite these defenses, the rupee has weakened 7% this year, the worst performance in Asia, with overseas funds pulling over $30 billion from Indian equities. Former RBI executive G. Mahalingam notes the central bank is "building up layers of defenses" as Middle East tensions intensify and inflows dry up.
The RBI's diaspora deposit program raised a record $133 billion, swelling forex reserves to nearly $800 billion, but $51 billion has been drained in the past four weeks. Governor Sanjay Malhotra maintains the rupee is undervalued, though the currency closed slightly above its record low of 96.9650 per dollar on Friday. Analysts suggest 97 per dollar is the RBI's "line in the sand," but sustaining gains may prove difficult as hedging costs rise due to new derivative curbs.
The measures target demand in the foreign-exchange market, lowering transaction limits and restricting contract rebooking, potentially making currency management more expensive for regular importers.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing