Indian rupee to rise as offshore traders cut bearish bets, RBI clarifies hedging rules

MUMBAI: The Indian rupee is poised to rally despite weakness across Asian peers, with offshore traders cutting bets against the Asian ​currency and expectations of continued central bank dollar selling lending ‌support.

The Indian rupee is expected to open in the 94.75 to 94.80 range, per traders, having settled at 95.0550 to the dollar on Thursday. Other Asian currencies dipped ​and the dollar index inched higher.

There has been “a fair amount” of ​unwinding of long USD/INR positions this week, a currency trader ⁠at a foreign bank said.

That is supporting the rupee in the ​non-deliverable forward market and with the Reserve Bank of India “quite determined” to push ​the rupee higher, there’s probably more room for long dollar positions to be cut, he added.

The dollar/rupee rate in the NDF market is trading at a discount to ​its onshore counterpart, a rare phenomenon, particularly at a time when the ​rupee’s outlook remains challenging.

New trajectory

The rupee has charted its own course this week, buoyed ‌by ⁠a series of measures by the RBI to curb dollar demand and support the currency.

The measures included a reserve requirement on certain large foreign-exchange transactions for forward dollar purchases. However, a lack of clarity over which ​transactions were covered ​sowed confusion among ⁠bankers, triggering significant turbulence in India’s FX forward market.

Several banks held back from quoting prices to other banks, contributing ​to a drop in liquidity and exacerbating price moves.

Seeking ​to address ⁠the concerns, the RBI issued clarifications after market hours on Thursday.

A senior treasury official at a bank said while the clarifications “help a lot,” a few ambiguities ⁠and ​doubts remained.

Rupee forward premiums have surged this ​week amid a liquidity squeeze and banks cutting positions. The treasury official said the clarifications should ​help alleviate these market dislocations.