A Dubai futures bourse began trading the world's first contracts on the Indian rupee yesterday (June 7).

The contracts were launched without the blessing of India's central bank, which may lose some control over the partially convertible currency, experts said. 

The Dubai Gold and Commodities Exchange (DGCX) said it launched the non-deliverable rupee-dollar contract to tap India's burgeoning foreign trade, especially with the UAE, New Delhi's third largest trading partner.

The DGCX, based in the UAE's commercial hub of Dubai, said it had discussed the contracts with the Reserve Bank of India, which bought $22 billion in the five months to March to check the rupee's rise.

"They would not express an opinion one way or the other, which is in our point of view is quite satisfactory," DGCX director David Rutledge said.

"The market is outside the jurisdiction of India's central bank, which places curbs on trading in the rupee."

The rupee has been convertible on the current account since 1994, meaning it can be changed freely into foreign currency for specific purposes such as trade-related expenses. But it cannot be converted freely for activities such as acquiring overseas assets.

"With the introduction of rupee futures, the Reserve Bank of India's intervention will also become slightly ineffective," said Bank Muscat International head of currency trading Srinivas Sribashyam.

"They will be keenly watching the Dubai rupee futures and it will be another source of frustration for the RBI," he said.

The central bank, which says it intervenes to smooth volatility, declined to comment.

A central bank-appointed panel has recommended a plan to allow fuller rupee convertibility and greater movement of capital in and out of the local currency by the end of the 2010/11 fiscal year.

India's currency climbed 9 per cent  this year on increased capital flows as Asia's fourth-biggest economy expanded at the fastest pace in more than two decades.

DGCX rupee trading focused on the key June contract.

Settlement price for 100 Indian rupees was $2.4583, with 645 lots having been traded. It hit a high of $2.4615 and a low of 2.4571 during the 12-hour session.

"The volume is very good and it is more than what everyone in the market had expected, perhaps far beyond what RBI itself had expected," said a Dubai-based trader.

Each non-deliverable rupee-dollar contract represents 2 million Indian rupees ($49,360). The maximum price fluctuation is $2 per contract which will be offered in the current calendar month and the following two, the DGCX said.

In case of physical settlement, the euro-equivalent of the settlement price will be calculated, it said. - Reuters