Open To More Steps To Defend Rupee, Curb Forex Speculation: RBI Governor

The Reserve Bank of India would consider further measures, if needed, to curb speculative trading in the foreign exchange market, Governor Sanjay Malhotra said in an interview to Moneycontrol.

"The RBI is determined to do whatever is necessary to ensure orderly movement in the foreign exchange market," Malhotra said late Tuesday. The central bank's recent steps should not be seen as capital control measures and those were aimed at ensuring that forex markets serve genuine hedging needs rather than speculative bets, the report quoted the governor as saying. 

The rupee edged higher in the offshore market on Wednesday, with dollar-rupee non-deliverable forwards easing as much as 0.1 per cent to 95.36. The currency outperformed Asian peers in the previous session, rising as much as 0.8 per cent to 95.01 per dollar, following Monday's 1 per cent gain, as the RBI extended curbs on certain types of derivative transactions to further support the currency. 

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The extended curbs added to steps taken over the weekend, including a special window for oil firms to meet their dollar demand and broader restrictions on derivatives markets as the rupee slipped toward record lows. The central bank has also been aggressively intervening in the currency market to defend the local unit.

"Over the past few months, we have observed a very high proportion of trades being canceled and rebooked on the same day," he said. The RBI even observed cases where about one-third of trades were closed or canceled on the day they were entered into, Malhotra added.

Earlier this month, the central bank's monetary policy committee also increased its benchmark repurchase rate by 25 basis points to contain accelerating inflation and support a weakening rupee amid a foreign fund selloff.

The external sector was India's main macroeconomic challenge despite robust domestic growth, healthy bank balance sheets and improving corporate earnings, the report cited Malhotra as saying. The central bank is keeping a close watch on the evolving geopolitical headwinds and their impact on the economy, he said. 

Malhotra said the central bank's mandate of price stability "cannot be achieved without financial stability," as a stable financial system is essential for the effective transmission of its monetary policy. 

"I believe forex markets are getting unduly pessimistic about the Indian economy's future, which is actually underpinned by strong economic fundamentals," he said.

Earlier Tuesday, Finance Minister Nirmala Sitharaman said at the Bloomberg New Economy Forum in New Delhi that the RBI will continue with its efforts to curb volatility in the rupee.

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