The Indian rupee strengthened for a second straight session on Tuesday as the Reserve Bank of India rolled out more measures to ease pressure on the currency. In early trade it rose 82 paise to 94.96 per dollar, after opening at 95.53. On Monday it had gained about 1%, its biggest one-day jump in more than six months, after nearing a record low of 97.
The RBI announced the steps on Saturday, October 10. They include:
A special dollar window to meet the needs of state-run oil companies.
A first-ever foreign-exchange risk reserve. Lenders must hold with the central bank the rupee equivalent of 20% of the notional value of each derivative deal above $2 million, which raises the cost of some hedges.
A ban on authorised dealers rebooking cancelled rupee derivative contracts.
The measures are meant to cut spot dollar demand and curb speculative bets against the rupee. Softer crude prices also helped, though Brent remains elevated at around $105 a barrel. The central bank also raised interest rates on October 7 and has said it is open to tightening further.
Defending the currency has been costly. The rupee is down about 7% this year, and the RBI has drawn roughly $51 billion from its reserves over the past four weeks. Madhavi Arora, lead economist at Emkay Global Financial Services, called the steps “tactical fixes, not structural solutions” that should give the rupee some near-term support. September retail inflation rose to 5.54%, from 4.83% in August, and foreign investors were net sellers of Indian equities on Monday.
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