Tuesday 20 December 2011
New RBI rules that reduce trading limits of banks and companies
India's piecemeal steps to defend the rupee can do little more than slow its decline for now, and some of the measures risk hurting the currency in the long term. In particular, new RBI rules that reduce trading limits of banks and companies could have the unintended effect of hampering their ability to hedge, choking off market liquidity and driving a chunk of trading to offshore markets.
The rupee's weakness a drop of nearly 20 percent from July highs to a record low last week reflects the increasing doubts of foreign investors over the ability of India to tame high inflation, prop up falling growth and rein-in its large fiscal and current account deficits.
Citigroup expects rupee trading volumes to drop by 25 to 30 percent after measures implemented late last week.
The rupee's weakness a drop of nearly 20 percent from July highs to a record low last week reflects the increasing doubts of foreign investors over the ability of India to tame high inflation, prop up falling growth and rein-in its large fiscal and current account deficits.
Citigroup expects rupee trading volumes to drop by 25 to 30 percent after measures implemented late last week.
