India's rupee gained as Reserve Bank of India Governor Sanjay Malhotra said the central bank would consider more steps to thwart speculative bets, days after announcing sweeping measures to bolster the currency. Central bank intervention also fueled the advance. The rupee strengthened as much as 0.6% to 94.7525 per dollar on Wednesday, adding to a 1.5% gain over the past two sessions.
Malhotra told Moneycontrol late Tuesday that the RBI saw significant speculation in currency derivatives and undue pessimism about India's economy in forex markets. Kunal Sodhani, head of treasury at Shinhan Bank in Mumbai, called the comments "essentially verbal intervention" that backs up the RBI's recent regulatory moves. He warned that if oil prices head higher and the rupee weakens, some market participants could be exposed to losses because the RBI's measures have made hedging costlier.
The central bank aided the rupee's gains by selling dollars in the market on Wednesday, according to traders familiar with the developments. The steps announced over the weekend included broad curbs on currency derivatives markets, stricter requirements to prove genuine hedging, and a special window to meet the dollar needs of oil refiners, some of the largest importers in the country. The currency had approached record lows despite a massive capital-raising program and an interest-rate hike.
Bonds fell on expectations of further rate hikes after Malhotra said the central bank does not usually use monetary policy to address financial stability risks, but the two cannot be fully separated. Benchmark 10-year yields climbed as much as five basis points to 7.41%. Last week, the RBI raised interest rates for the first time in almost four years while signaling more tightening.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing