Rupee Forwards Rise a Second Day as Regulators Curb Speculation

India’s onshore rupee forwards rose for a second day, extending a rebound from record lows, after policy makers took steps to curb speculation. The spot rate ended stronger after fluctuating between gains and losses.

The Reserve Bank of India barred banks from proprietary trading in currency futures and exchange-traded options, according to a July 8 statement on its website. The Securities and Exchange Board of India said separately it will raise margin requirements and cap open positions in such contracts. The RBI also asked Indian oil refiners, the largest buyers of foreign currency, to purchase dollars only from the State Bank of India, the nation’s biggest lender, CNBC-TV18 television channel reported yesterday, citing people it didn’t identify.

The regulators’ measures “may provide a temporary reprieve for the rupee and could see a pullback in the dollar-rupee exchange rate,” Charlie Lay, an economist at Commerzbank AG in Singapore, wrote in a research report today. “Uncertainty over the rupee remains high, but on balance we see the rupee strengthening against other Asian currencies from current levels.”

Three-month onshore rupee forwards advanced 0.5 percent to 60.97 per dollar in Mumbai, data compiled by Bloomberg show. They rose 0.9 percent yesterday, the most this month, after touching an all-time low of 62.09 on July 8. Offshore non-deliverable contracts gained 0.6 percent to 61.02. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

The rupee advanced 0.8 percent to 59.6550 per dollar in the spot market, according to prices from local banks compiled by Bloomberg. It sank to an unprecedented 61.2125 on July 8. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 30 basis points, or 0.30 percentage point, to 12.91 percent.

Bond Purchases

Relative stability in the rupee’s exchange rate following regulatory measures to rein in speculation may prompt the central bank to resume monetary easing, stabilizing the bond market and attracting buyers, Commerzbank’s Lay wrote.

Global funds were net buyers of rupee debt on July 8 for the first time in 14 days, exchange data show. Overseas investors have cut holdings of local bonds by $7.9 billion since May 22, when the Federal Reserve signaled it may pare stimulus.

The Indian currency should stabilize between 58 per dollar and 61 in the “near term,” Lay predicts.

Before it's here, it's on the Bloomberg Terminal.