New Delhi, March 30: Following a new initiative by the Reserve Bank of India (RBI), the Indian rupee opened approximately 1.3% stronger against the US dollar at 93.59 on Monday.
The RBI has directed banks to limit their open positions in rupees to $100 million to curb speculation in the foreign exchange market. This move aims to prevent further depreciation of the rupee.
The central bank instructed authorized dealer banks to maintain their onshore positions at $100 million by the end of the trading day. Additionally, all commercial banks must implement this regulation by April 10. Depending on market conditions, the RBI may set different limits in the future.
Estimates suggest that the size of such open positions ranges from $25 billion to over $50 billion.
In March, the rupee weakened by more than 4% due to global tensions. Last Friday, it fell nearly 1% to reach 94.8125, touching a level of 94.84.
Analysts indicate that persistently high crude oil prices are exerting pressure on the rupee and the overall economy. Tensions in West Asia have escalated into the fifth week, with signs of further increases.
They noted that the conflict in West Asia, the involvement of Houthi rebels, and the deployment of additional US troops have caused Brent crude prices to rise again to around $116 per barrel.
Experts believe that the Indian economy was previously in a strong position, characterized by rapid growth, low inflation, and a stable deficit. However, the current situation has weakened. There are concerns about declining GDP growth, rising inflation, and increasing fiscal and current account deficits in the future.
Nevertheless, the market has largely factored in these risks. The Nifty’s P/E ratio has dropped to about 19.9 times, which is currently considered reasonable, though not cheap.
According to analysts, the RBI’s move could provide support to the rupee in the near term. A reduction in large dollar positions may strengthen the rupee.
Currently, demand for the dollar and inflation risks related to oil continue to pressure the rupee. Until there is a significant drop in crude oil prices, the rupee may remain weak.
Meanwhile, Brent crude futures have risen by 3.66% to nearly $116.70 per barrel, while US WTI crude has increased by 3.75% to trade at $103.38 per barrel.
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