RBI urges major banks to limit large trading bets against rupee

Stabilising Rupee: The Reserve Bank of India (RBI) has instructed several major banks to refrain from increasing their positions against the Indian rupee, aiming to stabilise the currency which has recently reached record lows for three consecutive days, according to four bankers who spoke to Reuters on condition of anonymity.

On Tuesday, RBI officials from the financial markets regulation and operations department reached out to key banks as the rupee approached the critical level of 84 per dollar in the spot market. The RBI has not yet responded to a request for comment, and the specific banks contacted remain undisclosed.

The Indian rupee has been the worst-performing currency in Asia over the past month, impacted by the unwinding of trades that used the Chinese yuan to support long positions on the rupee. In response, the RBI has intervened in the spot, futures, and non-deliverable forwards markets.

Officials from the RBI advised banks to "consider the existing position size the risk limit," indicating they should not expand their current trading positions on the rupee. This informal guidance is part of the RBI's strategy to manage excessive volatility in the currency markets. Historically, banks have complied with such informal directives.

On Tuesday, the rupee hit a record low of 83.96 per US Dollar, but likely would have depreciated further without the RBI’s intervention. The central bank is estimated to have sold around $1.5 billion in the non-deliverable forwards market before the spot market opened, helping prevent the rupee from breaching the psychological 84 level.

The RBI has advised banks to avoid aggressive bidding for speculative positions in USD/INR trades but has not mandated reductions in existing positions or provided specific instructions regarding the non-deliverable forwards market.

(With Reuters inputs)