New Delhi, March 30: The Indian Rupee opened stronger against the US Dollar on Monday, gaining approximately 1.3 percent to reach 93.59, following new measures introduced by the Reserve Bank of India (RBI).
The RBI has directed banks to limit their open positions in the Rupee to $100 million in an effort to curb speculation in the foreign exchange market, aiming to prevent further depreciation of the currency.
Authorized dealer banks have been instructed to maintain their onshore positions within this limit by the end of each trading day, with all commercial banks required to implement this rule by April 10. Depending on market conditions, the RBI may establish different limits in the future.
Estimates suggest that the size of such open positions could range from $25 billion to over $50 billion.
In March, the Rupee weakened by more than 4 percent due to global tensions, and last Friday, it dropped nearly 1 percent to reach 94.8125, touching a low 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 their fifth week, with indications of further intensification.
The price of Brent crude has surged back to around $116 per barrel due to increased conflict in West Asia, the involvement of Houthi rebels, and the deployment of additional US troops.
Experts note that while the Indian economy was previously in a strong position characterized by rapid growth, low inflation, and a stable deficit, the current situation appears to be weakening. There are concerns about a potential decline in GDP growth, rising inflation, and increasing fiscal and current account deficits in the near future.
However, the market has largely factored in these risks already. The Nifty’s price-to-earnings ratio has settled at approximately 19.9 times, which is currently considered reasonable but not cheap.
According to analysts, the RBI’s recent action could provide support to the Rupee in the short term, as a reduction in large dollar positions may strengthen the currency.
Currently, the demand for the dollar and inflationary pressures related to oil continue to weigh on the Rupee. Until there is a significant drop in crude oil prices, the Rupee may remain under pressure.
Meanwhile, Brent crude futures have risen by 3.66 percent to nearly $116.70 per barrel, while US WTI crude has increased by 3.75 percent to trade at $103.38 per barrel.