RBI Eases FX Curbs, Boosts Rupee Nearly 2% from Record Low

"Overall, the decision to ease some of the measures appears to be aimed at striking a balance between supporting genuine hedging needs while curbing arbitrage or speculative activity in the currency market," the report from DBS Bank said.

The RBI partly rolled back FX curbs imposed earlier in the month, which were intended to arrest one-sided depreciation in the Rupee, but had caused liquidity and positioning disruptions in onshore as well as offshore trades.

The Central Bank will permit related‑party foreign‑exchange transactions such as cancellation and rollover of existing contracts. Further, it allowed back‑to‑back hedging in the non‑deliverable forward market to offset the risk from FX contracts. It kept the nominal ceiling on net open positions intact and also some restrictions on banks' dealings with related parties in the full range of FX derivative transactions.

These relaxations follow the RBI Governor's statement earlier in the month that the curbs were likely temporary. Banks had also reportedly sought some leniency to make room for real hedging requirements of Rupee-linked exposures.

Radhika Rao, Senior Economist & Executive Director, DBS Bank said the Rupee also gained marginally after reports that state‑run oil marketing companies were asked to cut spot Dollar purchases and instead tap a special credit facility via the largest state‑owned bank.

"This echoes steps taken during the Russia-Ukraine oil crisis and taper tantrum, aimed at streamlining oil-related Dollar purchases and limiting further weakness in the currency, although underlying Dollar demand-supply imbalance persists," Rao said.

Though future geopolitical moves and energy market dynamics remain uncertain, the risk of further incremental measures will keep aggressive Rupee bears at bay, she added.

- IANS