Speaking to CNBC-TV18, Dave said the withdrawal of restrictions on rebooking hedge contracts and offshore hedging reflects the central bank’s confidence that earlier steps have achieved their objective. “Unusual times call for unusual responses,” he said, noting that the measures were aimed at breaking a self-reinforcing depreciation cycle in the rupee.
He explained that the restrictions had helped stabilise the currency by creating a separation between onshore and offshore markets. “Currencies can get into a self-created spiral. Therefore, if the market regulator feels that that spiral needs to be broken, I think they’ve broken it,” he said.
According to Dave, the rollback indicates a gradual reopening of the market. “Today’s withdrawal of the April 1 circular would seem to suggest that hopefully this is the start of the overall withdrawal… so that market liquidity… goes back,” he said.
He added that the central bank’s decision was likely driven by a combination of stabilising market conditions and feedback from participants. “It was just making it more cumbersome to unwind those transactions,” he said, referring to earlier restrictions, adding that the changes “remove the friction, without adding to the demand for dollars”.
On the currency outlook, Dave said the rupee may remain relatively range-bound in the near term, though structural pressures persist. He pointed to sustained foreign portfolio investor outflows, weak net FDI and behavioural shifts among exporters and importers as key drivers of earlier weakness.
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“We are seeing early signs of FPI selling tapering off… but the bias for slow weakness will change only when either FPIs come back or you have stronger gross FDI,” he said.
Dave emphasised that while policy measures can influence short-term movements, long-term currency direction will continue to be dictated by underlying demand-supply dynamics in the market.
