Rupee weakened past the 95 mark against the US dollar for the first time as corporates engaged in arbitrage trades between the onshore spot market and non-deliverable forwards, triggered by the central bank’s tightening of banks’ forex positions. The currency fell to 95.20 per dollar during the day. The RBI’s move to tighten limits on banks’ foreign exchange positions offered only brief support to the rupee. The currency has depreciated 4.4% against the dollar in the March quarter.
RBI had asked banks to cap their net rupee positions in the foreign exchange market at $100 million by the end of each business day. This move is aimed at reducing speculative positions and limiting volatility in the currency market. Banks will comply with this rule by April 10. The Indian currency has been hit by persistent foreign portfolio outflows and rising concerns over oil prices. Due to war in Middle East, India’s higher crude oil prices have increased India’s import bill, widening the current account deficit. Appetite among investors has been reduced due to geopolitical tensions. Equity markets also fell sharply on Monday. The Nifty 50 was down around 2% on Monday and is on track for its worst monthly decline since March 2020.
