In an interview with CNBC-TV18, Dave stated that the removal of restrictions on rebooking hedge contracts and offshore hedging demonstrates the central bank’s confidence in the success of prior measures. “Unusual times call for unusual responses,” he remarked, highlighting that these measures were designed to disrupt a self-perpetuating depreciation cycle in the rupee.
He elaborated that these restrictions had played a role in stabilizing the currency by differentiating between onshore and offshore markets. “Currencies can fall into a self-reinforcing spiral. If the market regulator believes that this spiral needs to be disrupted, they’ve succeeded in doing that,” he noted.
Dave further explained that this rollback suggests a gradual easing of market conditions. “The withdrawal of the April 1 circular today seems to indicate that this could be the beginning of an overall withdrawal… aimed at returning market liquidity,” he mentioned.
He remarked that the central bank’s decision was likely influenced by a mix of stabilizing market conditions and feedback from participants. “The previous restrictions were making it increasingly cumbersome to unwind those transactions,” he said, noting that the adjustments “reduce the friction without heightening the demand for dollars.”
As for the currency forecast, Dave noted that the rupee may remain relatively stable in the short term, despite ongoing structural pressures. He pointed out persistent foreign portfolio investor outflows, weak net FDI, and behavioral shifts among exporters and importers as significant factors contributing to previous volatility.
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“We are observing early signs of FPI selling diminishing… but the inclination toward gradual weakness will only change when either FPIs return or there is stronger gross FDI,” he added.
Dave stressed that while policy measures might impact short-term fluctuations, the long-term direction of the currency will remain determined by the fundamental demand-supply dynamics within the market.
