The Indian rupee strengthened against US dollar on Monday after the Reserve Bank of India announced foreign exchange curbs to ease mounting pressure on the currency.
The rupee appreciated nearly 94 paise to 95.81 levels against the greenback, after closing at 96.73 on Friday. Reports indicated that the central bank has also sold dollars in the onshore markets to support the legan tender.
In circulars issued on October 10, the RBI barred authorised dealers from permitting users to rebook cancelled rupee-linked foreign exchange derivative contracts. It also cut the threshold for derivative transactions without underlying exposure to $5 million from $100 million.
The central bank introduced a Foreign Exchange Risk Reserve (FERR), requiring authorised dealers to maintain a cash reserve equivalent to 20% of the rupee value of eligible derivative contracts exceeding $2 million. The requirement applies to specified hedges against current account exposures involving foreign currency purchases.
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Further, itannounced a special window to meet the entire daily dollar requirements of three public sector oil marketing companies (OMCs). The central bank also announced regulatory measures for the foreign exchange market to strengthen market discipline and ensure appropriate risk management in the foreign exchange market, while maintaining an orderly and transparent market environment.
The measure came as the rupee continues to depreciate amid persisting geopolitical and global economic uncertainty. The local unit closed at 96.71 against the US dollar on Friday. The three oil marketing companies (OMCs) for which the RBI announced the special window are: Indian Oil Corporation Ltd, Hindustan Petroleum Corporation Ltd, and Bharat Petroleum Corporation Ltd.
"On the basis of assessment of current market conditions, Reserve Bank of India has decided to open a special window to meet the entire daily dollar requirements of three public sector oil marketing companies (OMCs)..." it said. Under the facility, the RBI will undertake sale of USD to the public sector OMCs through designated banks.
As part of regulatory measures, the RBI said, "Authorised dealers shall not permit users to rebook any foreign exchange derivative contract involving INR, whether deliverable or non-deliverable, which has been cancelled with any authorised dealer".
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