RBI’s Latest Attempt to Shield Rupee May Bring Near-Term Rebound

Good morning...

I’m Ashutosh Joshi in Mumbai with a quick read on the markets, where FX remains firmly in the spotlight.

President Donald Trump’s latest Iran comments are unsettling global markets, but for India, the talk of the town is of course the RBI’s latest attempt to curb speculation against the battered rupee. India’s monetary authority said late yesterday it will restrict banks from offering non-deliverable forwards to resident or non-resident users. The latest instructions are applicable immediately and come hot on the heels of other measures aimed at restricting short sales of the rupee.

The moves could trigger a near-term rebound, with any sustained strength likely to shape sentiment across equities too. But the previous efforts had only a fleeting impact on the rupee, with the local currency down 4% since the Iran war broke out and ranking as Asia’s worst performer so far this year.

Meanwhile, banks will be at the forefront of the selling pressure in India, as tighter rules on foreign currency trades could weigh on profits in the April-June quarter. The sector was the worst performer on Monday after the RBI had capped daily currency positions to just $100 million per bank on fears it could trigger mark-to-market losses.