The Indian rupee fell victim to inflation and economic concerns, and there was serious worry for the BRIC economy facing major financial crisis, the rupee slumped to record a low of 54.29 against the dollar (Dec 2011). Thus the central bank rushed in and tried to avoid banks playing with the currency in speculative trades and halted overnight position limits.
The new year has brought some positive light as the rupee has shown recovery; however the eurozone crisis is still in its peak and the bank does not wants to give a clear signal to the market. India’s central bank has asked banks to approach it individually for relaxing some foreign currency trading limits and has already eased restrictions for some banks, a top official said Monday.
“Some limits, based on their (banks’) merchant positions, have been relaxed,” Reserve Bank of India Deputy Governor H.R. Khan told reporters after a speech in Mumbai.
He said the banks have been asked to route their requests through the Foreign Exchange Dealers’ Association of India, an industry body. Earlier, banks were allowed to set their own board-mandated trading limits. Such levels had to be then approved by the central bank.
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The relaxations come as a raft of steps by Indian authorities to prop up the rupee and an improved global risk appetite have pushed the unit about 9% up against the greenback this year.
The government and the central bank have eased foreign investment restrictions in local debt and stocks, freed interest rates paid on deposits held by Indians living abroad and increased taxes on gold and silver imports.
India’s currency futures have seen strong growth after the product was introduced in 2008, the government want to push this product for hedgers and continues to expel spot FX as a trade bale asset class for retail investors.