MUMBAI: The rupee rose 96 paise to 95.77 per dollar on Monday after fresh measures to curb dollar demand and speculative positions, even as banks sought relaxation of the new foreign exchange restrictions, more time for compliance and clarity on operational issues. The currency has weakened around 6.5% this year.The recovery may prove temporary unless underlying pressures ease, economists said. Elevated oil prices, foreign portfolio outflows and a widening trade deficit continue to weigh on the currency. The sustainability of the rupee’s recovery will depend on crude oil prices, capital flows, foreign exchange reserves and whether underlying balance-of-payments pressures ease, dealers said. Monday’s gain was the highest in over six months. The rupee had gained nearly 124 paise on April 2. Monday’s surge was among the top five gains in the last five years as well.
The Foreign Exchange Dealers’ Association of India (FEDAI) petitioned RBI seeking relaxation and deferment of the measures. Banks flagged additional client documentation, uncertainty over pricing products to recover compliance costs, and the need for clarity on how frequently reserves must be deposited and reported. They also cited the cost of interest on additional reserves parked with RBI, which varies across banks, and the expense of developing customised products to meet the new requirements.Bond yields, meanwhile, rose as the measures tightened liquidity and raised concerns about further monetary tightening. The 10-year yield climbed to around 7.39%. Banks have also been directed to maintain at least 99% of their required cash reserves with RBI each day during a fortnight, up from 90%, effective Oct 16.
