Rupee closes flat curbs on speculation show effect

RBI has given enough signals for banks not to hold speculative positions.

Showing a sharp drop in volatility, the rupee closed flat against the dollar, amid concern that Europe’s debt crisis would worsen.

Dealers said the rupee movement in a narrow range was partly an effect of the restrictions the Reserve Bank of India (RBI) had clamped on speculative trading last week. The apex bank has given enough signals for banks not to hold speculative positions.

The rupee was little changed at 52.89 a dollar in Mumbai, compared with 52.885 yesterday, according to data compiled by Bloomberg. It has declined 0.3 per cent this week after reaching a record low of 54.30 on December 15. The currency rallied 1.7 per cent on December 16, as the central bank announced measures to curb speculation.

The Bombay Stock Exchange India sensitive index fell for a fifth day, sinking to a 28-month low after global funds pulled out $233 million from Indian stocks last week and $75 million on Monday, exchange data show.

“European concerns are here to stay until we have something more concrete from the policy makers there,” said a currency trader at state-owned Andhra Bank in Mumbai.

RBI deputy governor Subir Gokarn said, “Although the rupee is at 53, it has been relatively more stable, If you go by the intra-day volatility, that was some weeks ago. That may reflect the fact that some of the measures we have taken are helping to keep some boundaries on it.”

“These measures are not the only ones we have. There are other measures we can undertake to bring stability to this market and as the need, arises we will use these.”

RBI had last week said companies couldn’t enter into multiple forward contracts to cover a single foreign transaction, and allowed microfinance lenders easier access to foreign funding. India plans to ease restrictions on foreign borrowing and allow companies to raise dollar loans at higher costs, two government officials with direct knowledge of the matter said yesterday.

The rupee has been the worst performer in the Asian region, losing 18 per cent this year. The fall was escalated since the US downgrade by Standard and Poor’s in early August, and touched an all-time low of 54.30 to the dollar last Thursday.

Offshore forwards indicate the rupee would trade at 54.27 to the dollar in three months, compared with expectations for a rate of 54.06 yesterday.