MUMBAI, April 2 (Reuters) - The Indian rupee jumped on Thursday after the central bank imposed curbs on speculative activity, with the widening spread between the onshore and non-deliverable forward markets highlighting the impact of the steps on hedging costs.
The rupee climbed 1.4% at the open to 93.53 per U.S. dollar after the Reserve Bank of India barred banks from offering rupee non-deliverable forwards to resident and non-resident clients. The RBI further said that companies cannot rebook cancelled forward contracts.
The NDF measure was intended to stamp out arbitrage activity by corporates that had undermined the RBI's move to curb banks' position limits aimed at supporting the rupee.
The curb on rebooking forward contracts was targeted at ensuring corporates do not engage in excessive speculation and access the market primarily for genuine hedging needs.
After the initial jump, the rupee turned choppy, trading in the 93.14-93.64 range, with analysts saying the RBI-driven relief offers an opportunity for importers to hedge.
"This kind of relief doesn't alter the broader outlook for the rupee, which remains weak," Kunal Kurani, vice president at Mecklai Financial, said, adding "we are advising clients to hedge their payments for up to three months."
Hedging costs for importers in the onshore market were around 30 paise for one month, about 66 paise for two months, and 96 paise for three months.
This stands in contrast to the offshore NDF market, where hedging costs were significantly higher at around 80 paise for one month, about 1.64 rupees for two months, and nearly 2.42 rupees for three months across the same tenors.
The wide spread between onshore and NDF hedging costs underscores the impact of the RBI's measures taken on Wednesday, bankers said.
(Reporting by Nimesh Vora; Editing by Sonia Cheema)
By Nimesh Vora
