The Indian rupee is poised to rally at Monday's open after the central bank stepped up efforts to curb dollar demand, while higher costs under a new foreign-exchange rule are expected to temper forward dollar buying and impact forward premiums.
The rupee is expected to strengthen about 1% to 95.60-95.90 per dollar, after settling at 96.73 on Friday, traders said.
The Reserve Bank of India on Saturday barred users from rebooking cancelled rupee-linked foreign exchange derivative contracts, slashed the threshold for transactions without establishing underlying exposure and required banks to set aside 20% cash against certain FX contracts, potentially raising the cost of hedging against rupee weakness.
The measures are set to alter corporate hedging strategies by raising costs of banks for FX forward contracts, which are likely to be passed on to clients, while restricting speculative activity in the foreign-exchange market.
This is expected to temper corporate demand for dollars.