India’s central bank makes it harder to short the rupee

{"text":[[{"start":11.73,"text":"India’s central bank has forbidden banks to offer non-deliverable derivatives on the rupee in its second policy intervention this week to support the currency."}],[{"start":22.310000000000002,"text":"The move provided some relief to the rupee, which strengthened 1 per cent against the dollar to trade around Rs93.4, compared with Rs94.35 on Monday. India’s FX markets were closed on Tuesday and Wednesday."}],[{"start":40.99,"text":"The latest action marks an intensification of the Reserve Bank of India’s efforts to prop up the currency following the oil price shock caused by the Iran war."}],[{"start":52.43,"text":"“The longer the war goes on, the more pressure there is on central banks to defend their currencies without depleting reserves,” Abbas Keshvani of RBC said in a note."}],[{"start":65.23,"text":"On Monday, the RBI instructed banks to limit their open positions in the onshore deliverable market to no more than $100mn. That prompted a brief rise in the rupee, but it soon lost those gains as banks passed on their exposure to corporates, pushing the rupee to below Rs95 for the first time."}],[{"start":87.33000000000001,"text":"The new restrictions, announced late on Wednesday, will stop banks offering derivatives, such as forwards or contracts for difference, that can replicate a rupee position but are settled in another currency, such as US dollars."}],[{"start":102.56000000000002,"text":"They mean it is becoming increasingly difficult to place a bet on the direction of the rupee within the bounds of the Indian financial system."}],[{"start":112.54000000000002,"text":"The RBI will continue allowing deliverable contracts for hedging purposes."}],[{"start":118.34000000000002,"text":"“The RBI appears to be seeking greater clarity over onshore price formation,” said Dhiraj Nim, FX strategist and economist at ANZ Research. He said that, in turn, could enhance the effectiveness of its spot market operations by limiting the influence of the offshore market."}],[{"start":138.74,"text":"He estimated the daily size of the offshore trade was around $140bn to $150bn."}],[{"start":148.12,"text":"The RBI interventions “are not cost‑free over the medium term”, said Nim. Tighter market conditions “can lead to thinner liquidity, wider bid‑ask spreads, and a greater role for offshore markets in price discovery”, he added."}],[{"start":null,"text":""}],[{"start":164.11,"text":"The rupee was on a weaker footing compared with its peers even before the US-Israel attacks on Iran began in late February. It fell 10 per cent in the year to the end of March."}],[{"start":177.09,"text":"The RBI’s focus on speculators “reflects a desire to preserve intervention firepower”, Keshvani said."}],[{"start":185.37,"text":"“The central bank is likely trying to reduce depreciation pressure on the currency from speculators,” he said, adding, “especially given that the trade deficit will average $34bn per month at current oil prices”."}],[{"start":206.82,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1775179170_1230.mp3"}