India unveils dollar curbs to defend rupee

The Express Tribune reported that the Reserve Bank of India unveiled fresh steps on Saturday to support the rupee, which is trading near its weakest levels on record. Under the plan, Indian Oil, Hindustan Petroleum and Bharat Petroleum will be able to draw dollars directly from the central bank's foreign exchange reserves from Monday, taking their daily needs away from the spot market. Such a facility is normally used when the currency faces heavy strain.

The rupee has fallen more than 7 per cent this year, pushed lower by higher oil prices and rising global bond yields, while importers' demand for dollars far outstrips exporter supply. After the announcement, the currency gained around 0.6 per cent in offshore forward trading, although volumes stayed light.

The RBI has also made it costlier to hedge against further weakness: forex dealers must hold a 20% foreign exchange risk reserve against certain derivative contracts used to buy dollars for current account hedging, for deals above $2 million. In addition, the cap on derivative transactions that can be undertaken without proof of underlying exposure has been cut from $100 million to $5 million, covering exchange-traded futures as well. According to an anonymous source familiar with the central bank's thinking, the goal is to moderate speculative derivative demand and discourage repeated rebooking of contracts.