Rupee vs USD: INR Gains 33 Paise To Rs 92.85 Against US Dollar After RBI's FX Curbs

After the Reserve Bank of India (RBI) placed a $100 million cap on banks' net open FX positions in the onshore markets, rupee surged 33 paise to Rs  92.85 against USD. 

India's central bank imposed FX curb is considered part of RBI's larger attempt to reduce. speculative bets, meanwhile, analysts note that its impact is visible in rupee's movement.

However, global cues continue maintaining pressure as seen in terms of foreign capital outflows, high crude oil prices.

On Sunday, the  US President Donald Trump sparked fresh tensions after issued a warning to Iran, and setting the Tuesday deadline to open the critical Strait of Hormuz, while threatening to launch attack on its energy infrastructure.

The rupee gained 2% last Thursday and traded 0.3% higher at 92.81 per dollar on Monday.

Since the US-Iran war broke out on Feb 28, 4.5% fall in the rupee has been registered.

Meanwhile, the RBI also barred lenders from offering non-deliverable forward contracts to clients and stopped firms from re-booking canceled FX contracts in order to curb speculation.

"RBI has effectively broken the direct link between the onshore market and the offshore market," said Neeraj Gambhir, executive director for treasury, markets and wholesale banking products at Axis Bank, on Thursday, citing a Reuters report. 

"If there is a lot of speculative activity in the offshore market against the INR, it will no longer translate into the onshore dollar demand and will not deplete RBI's FX reserves."

The RBI first opened the NDF market to Indian banks in June 2020 and to resident Indians in June 2023, to deepen participation. The central bank opened up local access to the market despite reservations among a committee headed by a former Deputy Governor.

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"If we recall the FX market before the integration of offshore and onshore, the onshore pricing used to be heavily influenced by offshore," Gambhir said.

Gambhir reckons that if the RBI's measures don't end up delivering the desired outcomes, the central bank mayturn to direct measures for shoring up dollar supply or curtailing some dollar demand.

In the past, the central bank has used dedicated dollar-buying windows for oil companies and facilities to mobilise foreign currency deposits from non-resident Indians when the rupee came under sustained pressure.

(With Agency Inputs)