RPT-UPDATE 2-Indian rupee rebounds as regulators move to curb speculative trades

Tue Jul 9, 2013 5:49pm IST

(Repeats to additional subscribers with no changes to text)

* USD/INR ends at 60.14/15 vs 60.61/62 pvs close

* Bonds rally on hopes rupee will stabilise for now

* Regulators curb speculative trading; clarifies later

By Swati Bhat and Subhadip Sircar

MUMBAI, July 9 (Reuters) - The Indian rupee rallied on Tuesday from a record low in the previous session after regulators restricted speculative trading in currency derivatives, although the measures are expected to provide only brief respite for the currency.

Late on Monday, the Reserve Bank of India banned banks from proprietary trading in domestic currency futures and options, while the Securities and Exchange Board of India (SEBI) doubled the margin requirement on the domestic dollar-rupee forward trade.

The National Stock Exchange later clarified that clients with excess open positions in currency derivatives will have until July 30 to cut them to levels mandated by regulators.

The steps are the latest by regulators to curb speculative trading, which would pare short positions in the rupee, after some bankers said they had been discreetly asked last month by the RBI to trim intraday open positions.

However, the rupee is expected to remain vulnerable unless regulators take stronger measures, as the currency's weak position is seen as a symptom of India's record high current account deficit.

"There will be some impact on the rupee, but not likely to be massive as this does not change the structural weakness of the Indian external balances," said Nizam Idris, head strategist for currency and fixed income at Macquarie Group.

The rupee ended at 60.14/15 to the dollar, after rising to as high as 59.60 in early trade, and above the record low of 61.21 hit on Monday.

The rupee closed at 60.61/62 in the previous session.

The gains were driven by large unwinding of long-dollar trades in futures and spot markets, dealers said.

"The RBI would like to shift a part of the futures trading to the over-the-counter segment where it has better regulatory control. This move may be to instill discipline in the inter-bank forex trading segment," said M. Natarajan, treasurer at Scotia Bank.

In the currency futures market, the most-traded near-month dollar/rupee contracts were down around 0.8 percent in all three exchanges. Volumes remained high at $5.9 billion.

The rupee rebound had a knock-down effect on the domestic debt market as well. The benchmark 10-year bond yield ended down 2 basis points at 7.55 percent, after falling as much as 8 bps in early trade.

Separately, the central bank on Monday made it easier for non-bank asset finance companies to raise money abroad, which could help attract dollars in the medium term, dealers said.

Analysts said the RBI would likely resort to other administrative steps in the near-term, most likely the provision of a special window to provide dollars to oil companies, the biggest buyers of greenbacks in domestic markets.

In other measures, the government is taking steps to attract foreign direct investment and could review limits in sectors or issue a sovereign bond to non-resident Indians.

Finance minister P. Chidambaram is in the United States this week to drum up investment. He is seen, however, as struggling to push through proposals to relax rules on foreign direct investment in defence, telecoms, pharmaceuticals and retail.

The 5-year overnight indexed swap ended down 3 bps at 7.57 pct, while the 1-year rate ended 1 bp lower at 7.54 percent. (Editing Shri Navaratnam and Ron Popeski)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

End of Planning Commission


Climate Change

Climate Change

Climate change to cut South Asia's growth 9 percent by 2100 - ADB.  Full Article 

Ballmer Exits

Ballmer Exits

Ex-CEO Ballmer quits Microsoft board to focus on NBA's Clippers  Full Article 

Bribery Investigation

Bribery Investigation

Owed $6 billion, banks sharpen scrutiny of steelmaker Bhushan  Full Article 

Deal Talk

Deal Talk

JSW to buy Welspun Maxsteel for enterprise value of $165 million.  Full Article 

Needless Spending

Needless Spending

Exclusive - Icahn says Family Dollar wasting over $300 mln in breakup fees .  Full Article 

Luring Customers

Luring Customers

With cigars and crystal, Volvo makes eyes at Chinese rich.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage