Indian government backs RBI's aggressive measures to stabilize rupee
What's the story
The Indian government has backed the Reserve Bank of India (RBI)'s aggressive measures to curb currency speculation. The move comes after the rupee hit record lows, prompting some of the boldest steps in over a decade from the central bank. The Finance Ministry and RBI are on the same page regarding their strategy for the rupee, Bloomberg reports.
Strategy details
RBI's recent actions and market impact
The RBI's recent actions include restrictions on non-deliverable derivative contracts and capping banks' daily currency positions. These measures could impact a $149 billion-a-day offshore trading market. The central bank is also keeping a close watch on the situation and may take further action if necessary, sources said. However, they clarified that authorities are not targeting a specific level for the currency.
Bank guidelines
State-run banks advised against speculative positions
State-run banks have been advised not to take speculative positions in offshore markets when the rupee is under pressure. This comes as these banks have seen their profits grow in recent years. The RBI's latest measures are aimed at curbing popular methods of betting against the rupee, such as offshore derivatives and arbitrage trades, after direct market intervention failed to stop its decline.
Contract limitations
Additional restrictions imposed by RBI
The RBI has also restricted banks from allowing clients to rebook any FX derivative contracts after they have been canceled. Banks were also barred from entering into any FX derivative contract with their related parties. These restrictions are part of the central bank's larger strategy to stabilize the rupee and prevent further depreciation against the dollar.