As the rupee kept sliding to alarming new lows through June, July and August, there were some who were cheering it on. Cashing in on a steadily rising dollar, several traders bought the greenbacks only to sell them later and make a neat profit in the process.
The dollar-buying frenzy likely prompted authorities to announce a string of steps, including the controversial decision to cap the amount of dollars Indian individuals can carry overseas to $75,000 a year from the earlier $200,000, sources told HT.
They said there was evidence that between mid-June and early-August, several individuals — mostly traders who import goods to sell in India — bought several thousands of dollars on a single day and sold them weeks later to take advantage of the sharply falling rupee.
In a typical transaction, a trader would have bought dollars at R60 to a dollar and remitted these back home to sell a few weeks later at Rs 63. Such a round-tripping of $10,000 would have made him richer by Rs 30,000.
This was legitimate, but also a roundabout way of currency-hoarding that allowed speculators to make a neat gain by merely holding on to the dollars for a few days.
It was also one of the main reasons why the RBI asked banks not to carry out any trading in currency futures markets. Any such trade could only be on the behalf of clients.
“The intensification of exchange market volatility has prompted the Reserve Bank to undertake unconventional measures to restore stability in the currency market, so that macro-financial conditions remain supportive of sustainable growth,” the RBI said in its annual report released on August 22, barely a week after it slapped the controls.
“The RBI remains vigilant and is committed to orderly development of different segments of the foreign exchange market in India,” it added.
On Tuesday, the central bank cracked down on offshore forex trading by Indians through online trading websites, asking banks to report any such remittances to the regulator.
The RBI has more than halved the amount of dollars an individual can carry overseas in a given year and capped Indian companies’ overseas investment limits to a quarter of what it is currently — a move that will likely hurt corporate India’s global expansion plans.
It has also barred individuals from buying property abroad using foreign exchange bought at home as part of a broad strategy to arrest dollar outflow and prop the rupee.