Centre, RBI aligned on curbing currency speculation amid rupee fall

India’s government supports the central bank’s aggressive steps to crack down on currency speculation, people familiar with the matter said, suggesting authorities will stick to their approach despite lobbying by lenders to ease the restrictions.
The Ministry of Finance and the Reserve Bank of India are aligned on the strategy on the rupee, the people said, asking not to be identified because the discussions are private. Authorities aren’t targeting a specific level for the currency, one of the people said.

State-run banks should refrain from speculative positions in offshore markets when the rupee is under pressure, a person familiar with the matter said. The banks have seen profits growing in recent years and shouldn’t now be complaining about the action taken, the person said.

India’s Ministry of Finance did not immediately respond to an email seeking comment.

The RBI took some of its boldest steps in more than a decade to curb currency speculation and cushion the rupee after its plunge to record lows. On Wednesday, the central bank imposed restrictions on non-deliverable derivative contracts, threatening to squeeze a $149 billion-a-day offshore trading market. Late last week, it shocked banks by capping their daily currency positions.

The rupee advanced as much as 2% to 92.8262 per dollar on Thursday, the most since September 2013, as trading resumed after a two-day break. The gains came despite broad weakness in most regional currencies as US President Donald Trump signaled an escalation in the conflict with Iran.

Officials are monitoring the situation and the currency closely and is ready to take more steps, if needed, people familiar with the matter said. They don’t view the situation the same as the taper tantrum period in 2013, one of the people said, with India’s economy in better shape now than it was back then.

As the world’s third-largest oil consumer and a major importer of gas from the Middle East, India has been among the hardest hit by the Iran conflict and the virtual closure of the Strait of Hormuz. The additional demand for dollars to pay for a higher oil bill is putting the currency under pressure.

The RBI has other technical tools it can deploy to bolster the rupee, and will likely continue to draw down its foreign exchange reserves to stabilize the currency. The central bank’s reserves dropped by more than $30 billion in the first three weeks of March to about $700 billion.