The rupee rebounded sharply from a record low level, gaining 91 paise to 95.80 against the US dollar in early trade on Monday, after the Reserve Bank of India stepped in with several measures to contain volatility in the currency exchange market.
The Reserve Bank, on Saturday, announced several measures, including a dedicated dollar window for oil marketing companies through designated banks and higher costs for certain foreign exchange hedging transactions, to reduce dollar demand in the spot market and curb speculative positions.
Forex analysts said that these measures are expected to help the Indian currency sustain pressure from elevated crude oil prices and a strong dollar.
The RBI, in its October 10 circulars, barred authorised dealers from allowing traders to rebook cancelled rupee-linked foreign exchange derivative contracts, while continuing to permit rollovers on maturity subject to existing regulations.
It also reduced the threshold for undertaking foreign exchange derivative transactions without establishing an underlying exposure to USD 5 million from USD 100 million, across authorised dealers and recognised stock exchanges.
The central bank also introduced a Foreign Exchange Risk Reserve (FERR), requiring authorised dealers to maintain with the RBI, in cash, 20 per cent of the rupee equivalent of the notional amount of each rupee-linked foreign exchange derivative contract exceeding USD 2 million, where the transaction is undertaken to hedge current account exposures involving the purchase of foreign currency against the rupee.
The RBI said the measures were aimed at strengthening market discipline and ensuring appropriate risk management while maintaining an orderly and transparent foreign exchange market.
At the interbank foreign exchange market, the rupee opened stronger at 95.61 and pared some gains in early deals to trade at 95.80 against the greenback, registering a rise of 91 paise over its previous close.
The Indian currency closed Friday's session with a gain of 17 paise at 96.71, a day after falling 13 paise to hit its lowest closing level of 96.88 against the dollar.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading marginally lower by 0.08 per cent at 101.94.
Brent crude, the global oil benchmark, was trading lower by 1.54 per cent but stayed elevated at USD 103.11 per barrel in futures trade.
On the domestic equity market front, Sensex fell 20.00 points, or 0.03 per cent, to 72,452.33, while the Nifty was trading marginally up 7.95 points, or 0.04 per cent, to 22,529.85.
Foreign Institutional Investors (FIIs) offloaded equities worth Rs 3,568.90 crore on a net basis on Friday, according to exchange data.
The Reserve Bank data released on Friday showed India's forex reserves dropped by USD 12.952 billion to USD 734.606 billion during the week ended October 2. The overall reserves had dropped by USD 18.343 billion to USD 747.557 billion in the previous reporting week ended September 25.