[1]The Reserve Bank of India made a dramatic move to prop up its battered currency on Thursday, requiring exporters to sell half the foreign currency in their accounts, which helped to strengthen the rupee in morning trade.
The rupee rose to 52.95 to the dollar after the measures from its Wednesday close of 53.82/83, which was a record closing low.
"After meeting their import requirement, travel requirements, if they still have dollars in their account then they should sell these in the market instead of holding them," said a senior official at the Reserve Bank of India after the central bank's announcement.
The RBI also said the intraday open position trading can be five times the net overnight open limits available to them to improve liquidity in the market. Previously they could not exceed the overnight limit.
"Recently, exporters were holding on to their FX on fear that the INR will fall further. Now that they have to sell, we expect a significant positive impact on the INR," said Dariusz Kowalczyk, strategist at Credit Agricole CIB.
"Secondly, exporters can buy FX only after utilising all the FX they already hold in the Exchange Earner's FX account. This will reduce demand for foreign currencies," he said.
The RBI has been taking administrative measures and has also been intervening in the markets to support the rupee in recent sessions, according to dealers. It made similar moves to stem a tumble in late 2011.
"Since, December speculative trading and volumes have come down. We don't want to be restrictive on banks," the RBI official said reasoning the need for relaxing the limit despite a weakening currency.
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