India rupee forwards rallied from a record low on speculation the new central bank governor who is due to take the helm next month will implement more steps to arrest the slide in the currency.
Raghuram Rajan, a former International Monetary Fund chief economist credited with predicting the 2008 global financial crisis, was named the next Reserve Bank of India governor yesterday. The rupee is Asia’s worst-performing currency in the past six months having fallen 12.5 percent, according to data compiled by Bloomberg. The onshore currency tumbled to an unprecedented 61.8050 per greenback yesterday, prompting the RBI to sell dollars, said two traders with knowledge of the matter.
“The appointment, coupled with RBI intervention, allowed the India rupee to rebound from all-time lows yesterday, and new measures to support it are expected in weeks to come,” Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB, wrote in a note today. “This will at least slow the rupee’s slide in the near term.”
One-month offshore non-deliverable contracts rose 0.08 percent to 62.05 per dollar as of 10:30 a.m. in Singapore, according to data compiled by Bloomberg. They touched 62.53 yesterday, the weakest level on record. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
In the onshore market, the rupee rallied yesterday from an all-time low to close 0.2 percent higher at 60.785, according to prices from local banks compiled by Bloomberg.
The rupee has been hurt by India’s current-account deficit, which widened to an unprecedented $87.8 billion in the 12 months through March. Concern the Federal Reserve could reduce monetary stimulus as the U.S. economy strengthens has also triggered capital outflows from emerging markets.
India’s policy makers are exploring options to support the currency, including containing imports, Siddhartha Sanyal and Rahul Bajoria, economists at Barclays Plc, said in a report yesterday.
India may ease offshore loan rules to boost inflows, the Economic Times reported today, citing a government document. The overseas borrowing limit may be doubled to $1.5 billion for debt maturing in five years, the newspaper said. The regulatory panel on external borrowing meets today in Mumbai to decide on steps that will include allowing local multinational company units to raise working funds from overseas holding companies.