Mumbai: The Indian rupee on Wednesday opened higher against the dollar, responding to the overnight Reserve Bank of India’s (RBI’s) move to restrict the amount of money banks can borrow through the daily repo window. At 2pm, the local currency was trading at 59.26 per dollar, up 0.86%. It had opened at 59.405 level and hit a high of 59.17 in intra-day trade. Yields on the benchmark 10-year bond rose to 8.44% from their previous close of 8.162%, in response to tight liquidity conditions. Overnight interbank call money rates jumped to 10% in the morning trade, but cooled off subsequently to 8.5% at 2pm, even as it was higher than Tuesday’s closing of 6.5%. The dollar index, which measures the US currency’s strength against major currencies, was trading at 82.041, up 0.12% from the previous close of 81.945. Since January this year, the rupee has weakened 7.18% and has lost the most among Asian currencies during that period. On Tuesday, RBI had cut the amount of money banks could borrow through its repo window to 0.5% of bank deposits from 1% earlier. It also said banks have to keep a daily average of 99% of their deposits as cash reserve ratio (CRR). CRR, currently at 4%, is the amount of deposits banks have to keep with RBI for no interest. The RBI measures are aimed at curtailing the rupee liquidity and preventing banks to borrow from RBI and buy dollars in the forex market. The central bank may have been forced to tighten liquidity after the interbank call money rate—the rate at which banks borrow short-term funds from each other—averaged 6.75% since 17 July, lower than the 6.85% average before the RBI move. On Tuesday, call money rates touched a high of 7.35% in the interbank market before closing at 6.5%. However, the average yield on one-year commercial paper has already risen to 9.98% since 17 July from 8.82% between 1 and 15 July. India’s benchmark Sensex was trading at 20,053.60, down 1.22% from its previous close.

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