India rupee outpaces Asian peers on fresh FX curbs, RBI intervention

On Tuesday the Indian rupee outperformed most regional currencies, according to Business Recorder, helped by fresh measures from the Reserve Bank of India and likely spot market intervention. The currency touched 95.0725 per dollar early in the session before giving back some gains and closed at 95.28, a 0.5% rise from the previous close.

The Reserve Bank of India has rolled out a series of strict rules to prop up the currency. Oil-related dollar demand is being redirected to a special facility, while margins now apply to hedging of current account liabilities and to banks' own hedges. Banks were instructed to limit non-deliverable contracts to cases that protect underlying exposures, and the cap on derivative deals without such exposure was cut from $100 million to $5 million.

The tougher curbs have unsettled banks and caused side effects, such as wider bid-ask spreads in forwards, while more activity has shifted to non-deliverable forwards. Analysts anticipate the measures will steady the rupee, even though India's balance of payments outlook remains difficult. Union Bancaire Privee said in a note that the steps should lift the currency in the near term by cutting dollar demand and making derivative positions harder to build, while markets increasingly treat 97.00 per dollar as a line the central bank is willing to hold.