The Reserve Bank of India introduced sweeping measures, including a China-style foreign-exchange risk reserve, to make building forward dollar positions substantially more expensive. This crackdown helped the rupee appreciate by about 2% against the dollar, but hedging expenses soared to multi-year highs and chilled overall trading. Exporters also retreated from the market, reducing forward dollar sales to a five-month low of $32.2 billion in October. Meanwhile, persistent pressure from elevated oil import bills continues to challenge the local currency's stability.
Key points
Regulatory curbs succeeded in curbing speculative short positions but severely disrupted…: Regulatory curbs succeeded in curbing speculative short positions but severely disrupted normal domestic hedging operations.
Higher hedging costs diminish the attractiveness of local assets to overseas investors an…: Higher hedging costs diminish the attractiveness of local assets to overseas investors and risk further capital outflows.
Sustained oil import demand averaging $62 billion monthly continues to leave the rupee vu…: Sustained oil import demand averaging $62 billion monthly continues to leave the rupee vulnerable despite short-term stability gains.
Sources checked by our analysis pipeline: 1
(Bloomberg) -- 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 the 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,…
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