Rupee to extend recovery, RBI takes more steps to ease pressure

The Indian rupee is poised to continue its upward trajectory following the Reserve Bank of India's announcement of additional measures to alleviate pressure on the currency. Traders anticipate the rupee to open at 95.50 to 95.60 per dollar on Tuesday, having climbed 1% to reach 95.77 against the US dollar on Monday. The rupee's most significant single-day gain in six months was observed after the RBI unveiled a series of measures to curb dollar demand.

The central bank further backed up its stance with direct market intervention, selling dollars to support the rupee, according to traders. The RBI has since implemented further steps, expanding the scope of an introduced cash deposit requirement for foreign-exchange hedges to encompass all transactions, including those utilized to hedge the banks' own assets and liabilities.

The central bank has also tightened rules for banks offering non-deliverable foreign-exchange derivatives to clients. Lenders with units in India's International Financial Services Centre and certain primary dealers, who were previously permitted to offer non-deliverable rupee derivatives to non-residents for any purpose, are now restricted to using them solely for hedging purposes, as announced by the RBI.

The RBI is clearly signaling its intent to push the rupee higher, but the success of these forceful measures remains uncertain. A senior treasury official at a bank opined that while these actions could alter the near-term dynamics, if the underlying pressures persist, the measures may not yield the desired results.