Curerncy News.....for Investor

Dear Investor,

 

Rupee traded volatile yesterday but well off its life time lows as selling was witnessed in the pair in afternoon trades ahead of the credit policy review today. 

 

The Reserve Bank of India reduced trading limits for banks in the foreign exchange market, making it difficult for market players to keep speculative positions open for a long time. While the measures should help reduce speculative volatility in the FX market, in long term as global funding strains remain, the rupee is likely to stay under pressure.

 

RBI announced several regulatory measures in response to the severe weakness in the rupee in the last few days:

 

1. Forward contracts which have been booked by customer earlier cannot be cancelled and rebooked.

 

Impact: They will bring down trading by local customers. Obviously market liquidity will suffer. RBI seems to be targeting a lot of local customers who have long USD positions (from a trading perspective) and hopes to bring down USD/INR by forcing these clients to sell.

 

2. Forward contracts booked by clients on past performance have been reduced to 25% of the average of last 3 years export/import turnover from 75% earlier

 

Impact: Again, to reduce trading in USD/INR and restrict long positions

 

3. Even, FIIs who were earlier to cancel and rebook forward contracts top the extent of 10% of their equity and debt holdings are not permitted to do so any more

 

Impact: To restrict trading by FIIs in FX

 

4. The Net Outstanding Position (NOP) of banks has been reduced.

 

Each Bank would be notified their NOP limits separately. In addition, banks' intra-day NOP limits also has been restricted to their daily closing NOP limit.

 

Impact: Will bring down inter-bank trading considerably. Earlier banks would trade on an intra-day basis and would square off positions to meet the NOP limit for end of the day.

 

Net , USD/INR should open significantly lower, closer to the 53 mark as several long positions in USD/INR will get liquidated. And going into year-end, we would expect that USD/INR liquidity will be significantly lower and should trend down as the impact of these restrictions kick in. However, we think that this will not stop INR weakness as this is a structural problem and we continue to remain negative on INR going into 2012.

 

 

Thanks and Regards 
 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com

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