Rupee set to weaken after central bank curtails dollar inflow window
The RBI has brought forward by a month the cut-off for its discounted forex swap facility, following more than $50 billion in inflows from NRI deposits
The rupee is set to weaken on Monday as the central bank has shortened the deadline for its discounted forex swap facility, according to traders. The bank announced on Friday that the cutoff for the zero-cost hedging facility will now be August 31 instead of the previously set date of September 30. This decision comes after more than $50 billion in deposits from non-resident Indians flowed into the country, exceeding expectations.
The RBI stated that the move was based on the "encouraging response" to the swap facility and the resultant forex inflows. However, this action has sparked concern among currency traders, who noted that the early cut-off date could negatively impact the rupee's value, especially considering the strain on the currency from hedging by importers and the ongoing impact of high oil prices.
Despite these concerns, the large foreign-exchange reserves held by India provided the central bank with more room to intervene and support the currency.
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