Indian rupee set to extend recovery as RBI takes more steps to ease pressure

The Indian rupee is expected to open stronger on Tuesday, extending a recovery that traders attribute to the Reserve Bank of India's efforts to ease pressure on the currency. Traders put the opening range at 95.50 to 95.60 to the dollar, after the rupee rallied 1% to settle at 95.77 on Monday.

That advance was the currency's biggest single-day gain in six months. According to traders, it followed a series of RBI measures aimed at curbing dollar demand, reinforced by direct market intervention in which the central bank sold dollars to support the rupee.

The RBI has since taken further steps. It widened the scope of a recently introduced cash deposit requirement for foreign-exchange hedges to cover all such transactions, including those used to hedge banks' own assets and liabilities. It also tightened rules for banks offering non-deliverable foreign-exchange derivatives to clients. Lenders with units in India's International Financial Services Centre and certain primary dealers, which had been allowed to offer non-deliverable rupee derivatives to non-residents for any purpose, may now offer them only for hedging, the RBI said.

A senior treasury official at a bank said the RBI was making its intentions clear in trying to push the rupee higher, but whether such forceful measures would ultimately deliver the desired outcome was another question. The RBI can change the near-term dynamics, the official added, but if the underlying pressures remain in place, these measures may not prove effective.