India's monetary authority stepped up efforts to curb speculation against the battered rupee, restricting lenders from offering certain offshore foreign exchange derivative contracts, just days after it clamped down on banks' local currency limits.
The Reserve Bank of India said late Wednesday that authorized dealers in the currency market were prohibited from offering non-deliverable derivative contracts using the rupee to resident or non-resident users. Banks have also been instructed not to undertake any foreign exchange derivative contract with their related parties.
Banks can, however, offer deliverable foreign exchange contracts for users to meet their hedging needs as long as they do not enter into overseas positions to offset those transactions, the RBI said.
The latest instructions are applicable immediately and comes days after the RBI undertook its boldest step in more than a decade by curbing lenders daily currency positions to just $100 million. The measure had a fleeting impact on the rupee, with the local currency closing at 94.8325 per dollar on Monday, taking its loss to 4% since the Iran war broke out and ranking as Asia's worst performer so far this year.
The onshore currency market was shut on Tuesday and Wednesday for holidays and will resume for trading on Thursday.
On Wednesday, the RBI said banks should not allow customers to rebook any foreign exchange derivative contract, whether deliverable or non-deliverable that are canceled after the date of issuance of the latest instructions.
“This is a stronger measure to curtail the offshore speculation against the rupee,” said Dilip Parmar, currency analyst, HDFC Securities. “I expect a sharp appreciation on Thursday,” he said, referring to the currency.
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