MUMBAI — Indian companies cut dollar purchases used to hedge against rupee weakness to an eight-month low in October, a sign that the Reserve Bank of India's crackdown on what it called speculative bets against the currency is yielding results, Bloomberg reported via The Hindu BusinessLine. Buying of forward dollars — commitments by companies to acquire the US currency at a later date — fell 35 per cent in October from a record high the previous month to $49.5 billion, according to clearinghouse data. The figure was the lowest since February and reflects hedging by importers against losses from a weaker rupee.

Source: Bloomberg via The Hindu BusinessLine

The Economic Times, in a report carried by Data Street, published the same clearinghouse figures and the same conclusion: forward dollar buying dropped 35 per cent to $49.5 billion, the lowest since February, after the RBI's sweeping measures last month to defend the rupee as it neared a record low. The steps, which include a China-style foreign-exchange risk reserve, have made it more expensive to build forward dollar positions, helping ease pressure on the rupee even as costly oil continues to strain India's external finances. The currency has since risen about 2 per cent against the dollar, both reports said.

Source: The Economic Times via Data Street

"These measures reflect the policymakers' discomfort with persistent foreign-exchange pressures, but they remain tactical fixes rather than structural solutions," Madhavi Arora, chief economist at Emkay Global Financial Services, said, in comments reported by Bloomberg. The curbs, which build on steps taken in March, show the central bank is increasingly relying on regulatory tools alongside direct market intervention to support the rupee. Even after its recent rebound, the currency remains among Asia's weaker performers this year, Bloomberg reported.

Source: Bloomberg via The Hindu BusinessLine

The disruption cuts both ways. The intervention has disrupted hedging markets, with activity freezing after the curbs took effect, and the cost of buying insurance against rupee weakness rose to multi-year highs last month and remains elevated — potentially reducing foreign investors' appetite for local assets, because for fully hedged investors that cost can erode the yield advantage of domestic bonds, Norbert Ling, head of fixed income portfolio management for Asia Pacific at Invesco Hong Kong, said, as reported by Bloomberg. Exporters, too, have held back: their forward dollar sales were $32.2 billion last month, the lowest since May, reflecting uncertainty over the currency's outlook. Overseas investors sold index-eligible bonds worth about $590 million in October, the second straight month of outflows despite recent tax cuts for global funds. Sources: Bloomberg via The Hindu BusinessLine; The Economic Times via Data Street.

Source: The Economic Times via Data Street