India’s central bank has warned foreign banks trading in the Indian Rupee and causing market turmoil as the rupee hits new lows amid foreign banks speculative trading. The rupee has depreciated in the BRIC nation as inflation and interest rates are hurting the economy.
The Indian rupee has fallen 16% in 2011 as reports show banks trading offshore have been behind the major moves.
The majority of trades were done taking advantage of the difference between the forward premium rate in India and the offshore non-deliverable forward market rates, the report said.
The RBI hasn’t been sitting on the sidelines, on December 15th , the RBI reduced the net overnight open position limit (NOOPL) of authorised dealers in the foreign exchange market with immediate effect, potentially reducing capacity of market participants for taking trading positions.
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The weak rupee is hurting India’s export market, toppled with inflation there is a bleak sign of recovery. The Confederation of Indian Industry (CII) has warned of job losses and is appealing for urgent measures to tackle the slowdown after the Index of Industrial Production fallen to minus 5.1% in October.
The rupee is currently trading at 51.80 against the green back. It hit a record low of 54.21 in December 2011. The rupee was last seen around the 50 mark in 2009, in the height of the economic crisis. India has been experiencing strong growth in the last decade and the rupee was at a healthy 43.27 in 2005.
The rupee is a non convertible currency with limited international trading. The government introduced currency futures to help import/ exports mitigate risk, current daily trade volumes on the Indian futures market stand around $8-10 billion.
There are 37 international banks with branches in India and 47 international banks with representative offices.
Forexmagnates team wrote a detailed piece on margin FX in India in their quarterly report and brings important updates every quarter.