India's central bank - between a rock and a hard place”
Last night the RBI reacted swiftly to address the severe pounding the currency has been taking recently. INR (the rupee) is a “controlled” currency – not freely traded the way something like JPY trades. The banking system is also quite tightly regulated. Therefore the RBI was able to take a somewhat unorthodox action – restrict in trading of currency forwards. This is in addition to capping the amount of outright FX exposure Indian banks can maintain.
The Times of India: Dealers said the sharp recovery of the rupee was due to restrictions imposed by the RBI on forward trading in the local currency by FIIs and traders, besides the cap fixed on banks' exposure to the forex market.The impact on INR was immediate – see chart.
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