RBI directs banks to reduce speculative trading against rupee: Report

According to the Reuters report, this move was confirmed by four bankers with direct knowledge of the situation. 

In the early hours of Friday, the rupee hit a historic low of 84.5075 per US dollar, driven by substantial portfolio outflows and a strengthening dollar.

Foreign investors have already offloaded a net $3.1 billion in Indian equities in November, following record outflows of $11.2 billion in October, putting significant pressure on the local currency. 

The situation was further aggravated on Thursday when the US indicted Gautam Adani, the billionaire founder of the Adani Group, on charges of bribery and fraud.

Following this, foreign investors pulled out $600 million, with provisional data showing another $150 million in net sales on Friday.

The Adani Group, however, has categorically rejected these allegations as "baseless." 

To address the continuous foreign outflows and the rupee's depreciation, the RBI's financial market regulations department informally instructed banks to pare down their speculative long positions on the dollar-rupee pair.

While the central bank has regularly intervened in the forex markets through spot dollar sales and non-deliverable forwards, asking banks to cut long positions marks a rare step. 

The RBI also advised banks to refrain from purchasing spot dollars to capitalise on arbitrage opportunities.

This practice typically arises when offshore rates exceed onshore rates, increasing dollar demand domestically while enhancing offshore liquidity. 

The rupee has already declined by nearly 0.5 percent in November, exacerbated by over $4 billion in foreign investor outflows from local markets and a surge in the dollar index, which rose over 3 percent to 107.2—its highest in more than a year—following expectations of inflationary pressures linked to President-elect Donald Trump's policies. 

Despite the rupee's downward trend, the RBI’s interventions have mitigated its decline.

Comparatively, other Asian currencies have fallen between 0.9 percent and 2.2 percent this month.

By instructing banks to limit speculative activity, the RBI aims to stabilise the currency and prevent further volatility.