BLBG:Rupee Jumps Most Since May 2009 on Central Bank’s Move to Curb Speculation
India’s rupee surged the most in 2 1/2 years, extending its rebound from an all-time low reached yesterday, after the central bank announced measures to curb speculation in the foreign-exchange market.
The currency, this year’s worst performer among Asian currencies, strengthened the most in the region after the Reserve Bank of India said companies can’t enter into multiple forward contracts to cover a single overseas transaction. The new rule applies to domestic as well as foreign investors and takes effect immediately, according to a central bank statement published after the market closed yesterday.
“This is a good step to curtail the rupee’s weakness,” said Paresh Nayar, Mumbai-based head of money-market and currency trading at FirstRand Ltd. “The move will curb building of speculation in the market. There is a possibility the currency will move toward 52 per dollar during the day.”
The rupee jumped 2.3 percent to 52.41 per dollar as of 9:48 a.m. in Mumbai, according to data compiled by Bloomberg. It fell to an all-time low of 54.3050 yesterday and remains the region’s worst-performing currency of 2011 with a 14.8 percent loss.
The central bank also said it will reduce the amount of open positions dealers can maintain overnight. Forwards are agreements to buy or sell assets at a set price and date.
The Reserve Bank’s move will be positive for the rupee in the “short-term,” increasing transaction costs and showing the RBI is looking to curb currency-market speculation, according to Standard Chartered Bank Plc.
‘Buy Time’
“This, along with some intervention from the RBI, will buy time for the country to address medium-term issues such as the current-account deficit and capital outflows,” said Ananth Narayan G., head of South Asia currency and bonds trading at Standard Chartered in Mumbai. Those are the “root causes of the rupee’s weakness.”
Overseas funds cut holdings of Indian shares by $311 million this year after adding $29 billion in 2010, data from the market regulator, as Europe’s debt crisis slows growth in Asia’s third-largest economy. The nation’s current-account shortfall, which was $14.2 billion in the three months ended June 30, may widen to 3.5 percent of gross domestic product in the year ending March, Commerce Secretary Rahul Khullar said this month.
“The step is likely to stem the fall in the rupee but is unlikely to put on an appreciating bias,” Indranil Pan, chief economist at Kotak Mahindra Bank Ltd. in Mumbai, wrote in a report published today. “The aim is to reduce speculative positions and demand for dollars.”
To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
