MUMBAI: The rupee suffered a sharp setback against the US currency on Wednesday and ended at 40.52/53, reacting negatively to restrictions on external commercial borrowings (ECBs) imposed by the government.
In a knee jerk reaction to new ECB norms aimed at curbing excessive foreign capital inflows, the rupee opened sharply lower at 40.75/77 a dollar and touched the 40.84 level in late morning deals.
The local currency later recovered losses in highly volatile trade at the Interbank Foreign Exchange market on dollar sales by exporters and a strong rally in equity markets. The rupee moved in a wide range of 40.46 and 40.84.
The rupee, which hit a nine-year peak of 40.20 in July, suffered a setback due to the government's announcement of fresh restrictions on ECBs.
Dollar selling by exporters and a sharp rally in equity markets helped the rupee to bounce from the day's low, forex dealers said.
As per the changes, a company raising $20 million of External Commercial Borrowings (ECBs) would have to seek prior permission of RBI to remit such funds into India.
Accordingly, companies raising ECBs of more than $20 million would have to park the proceeds overseas for use as foreign currency expenditure. This modification is applicable under both automatic and approval routes.
The BSE benchmark Sensex soared by 375 points. Asian markets also ended up by one to 3.5 per cent today.
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