The Reserve Bank of India (RBI) stepped in to protect the rupee against the rising US dollar. The USD/INR reached 95.10 last week, sending warning signals of a potential currency depreciation. The RBI announced a series of policies to safeguard the currency from further decline. This includes limiting banks from betting against the rupee for not more than $100 million per day.
The maximum banks in India can trade against the rupee is $100 million against the US dollar. The move led to the rupee’s biggest bounce back in over 12 years. The INR went from 95.10 to 92.80 in just two trading sessions in a remarkable recovery. The new cap on trading forces banks to limit their orders and not go fully aggressive on the INR.
If this wasn’t enough, India is also forcing banks to liquidate their US dollar holdings by April 10, which can further boost the rupee’s prospects. Banks are now forced to dump nearly $30 billion to $40 billion before the April 10 deadline arrives. That’s a massive amount of US dollars being sold, which is going to happen in the next four days.
The RBI also prohibited authorized dealers from trading Non-Deliverable Forwards (NDFs) from April 1 onwards. This means they are cutting off the offshore markets in Singapore and London from messing with the INR. Dealers can no longer offer derivative contracts using the rupee to resident or non-resident users. India has tightened the loop, allowing the rupee a chance to surge against the bullish US dollar.
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Rupee Likely To Surge Against the US Dollar This Month
The Indian rupee is likely to surge this week against the US dollar due to the recent developments. The USD/INR could fall to the 90 range by the end of the week, leading to significant momentum towards the local currency. The ruling government came under severe criticism from the opposition due to the falling rupee. The RBI was advised to take bold steps to protect the national currency from further fall.