Rupee Jumps Most Since May 2009 on Central Bank’s Move to Curb Speculation

India’s rupee surged the most in 2 1/2 years, extending its rebound from an all-time low reached on 14 December, after the central bank announced measures to curb speculation in the foreign-exchange market.

The currency, this year’s worst performer among Asian currencies, strengthened the most in the region after the Reserve Bank of India said companies can’t enter into multiple forward contracts to cover a single overseas transaction. The new rule applies to domestic as well as foreign investors and takes effect immediately, according to a central bank statement published after the market closed on 14 December.

The rupee jumped 2.3 percent to 52.41 per dollar. It fell to an all-time low of 54.3050 on 14 December and remains the region’s worst-performing currency of 2011 with a 14.8 percent loss.

The central bank also said it will reduce the amount of open positions dealers can maintain overnight. Forwards are agreements to buy or sell assets at a set price and date.

The Reserve Bank’s move will be positive for the rupee in the “short-term,” increasing transaction costs and showing the RBI is looking to curb currency-market speculation, according to Standard Chartered Bank Plc.

Overseas funds cut holdings of Indian shares by $311 million this year after adding $29 billion in 2010, data from the market regulator, as Europe’s debt crisis slows growth in Asia’s third-largest economy. The nation’s current-account shortfall, which was $14.2 billion in the three months ended June 30, may widen to 3.5 percent of gross domestic product in the year ending March, Commerce Secretary Rahul Khullar said this month.