New Delhi: The rupee has strengthened nearly 2 percent against the dollar from its record low after the Reserve Bank of India (RBI) partially eased some foreign exchange (FX) restrictions, according to a report released on Thursday.
Market gets relief from easing FX restrictions
According to the report, the RBI’s decision aims to support genuine hedging needs while controlling speculation in the currency market. The DBS Bank report stated that this step was taken to strike a balance.
Previous restrictions caused instability
The RBI had previously imposed FX curbs to prevent a one-sided decline in the rupee, but this had led to liquidity and positioning issues in onshore and offshore trade.
New relaxations in hedging and transactions
The central bank has now permitted foreign exchange transactions between related parties, such as contract cancellations and rollovers. Furthermore, back-to-back hedging in the non-deliverable forward market has also been approved, thereby balancing risk.
Oil companies’ dollar purchases also under scrutiny
According to Radhika Rao, economist at DBS Bank, state-run oil companies were instructed to reduce spot dollar purchases and utilize special credit facilities, which provided additional support to the rupee.
Uncertainty may persist
The report said that the situation may remain uncertain going forward due to geopolitical conditions and fluctuations in the energy market, but the RBI’s actions are likely to limit pressure on the rupee.