Rupee, bonds rally on regulatory measures on FX

The Indian rupee opened stronger on Tuesday while bond yields dropped, following measures by the central bank and the market regulator to curb speculative trading in foreign exchange derivatives.

The partially convertible rupee opened at 59.80 per dollar and is currently trading at 60.05/06 in choppy trade.

The benchmark 10-year bond yield dropped 7 basis points at open to 7.50 per cent, while the most-traded 8.33 per cent 2026 bond yield fell 6 bps to 7.68 per cent.

India's regulators toughened rules for derivatives trading in the currency market in a bid to arrest the steep decline of the rupee, which fell to a record low of 61.21 against the dollar on Monday.

The Reserve Bank of India, in a notification issued late on Monday, banned banks from proprietary trading in domestic currency futures and the exchange-traded options market.

In a separate order, the Securities and Exchange Board of India (SEBI) increased the margin requirement on the domestic dollar-rupee forward trade to 100 per cent of the traded amount, which means investors will have to shore up the full amount of the transaction at the time of the trade itself and not during settlement.

SEBI also imposed fresh restrictions on open interest on USD-INR trades.

"In consultation with RBI and in view of the recent turbulent phase of extreme volatility in USD-INR exchange rate, it has been decided to curtail position limits and increase margin requirements for Currency Derivatives," the SEBI circular said.

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