(Bloomberg) – India’s rupee strengthened the most in seven months on Wednesday after the central bank aggressively sold dollars to support the currency. Stocks also gained.
The rupee rose as much as 1%, the most since May 23, to 90.0963, after closing at a record low in the previous session. The Reserve Bank of India is intervening through dollar sales in the local market, according to people familiar with the transactions.
The move follows the rupee’s string of record lows in recent weeks, which had sparked debate over why the Reserve Bank of India hasn’t stepped in more forcefully to support the currency. Traders said the authority likely intervened after it bought $5 billion of dollars via a foreign-exchange swap on Tuesday.
“There was a sense that the market was taking the rupee’s rapid depreciation lightly, and today the RBI has come back aggressively to dispel that view,” said VRC Reddy, head of treasury at Karur Vysya Bank Ltd. He said the central bank sold dollars around the 91 level.
The central bank’s action will cause an unwinding of speculative positions for now, said Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors.
Before today’s jump, the rupee was down almost 2% this month as foreign outflows from local stocks and bonds due to delays in finalizing a trade deal with Washington dented sentiment.
Karur Vysya’s Reddy said he doesn’t expect the rupee to strengthen much beyond the 90 mark until the trade accord is concluded.
Global funds have pulled about $18 billion from local equities this year. The withdrawals have worsened the strain on the rupee while the 50% US tariffs threaten exporters’ dollar inflows. At the same time, firm imports are keeping demand for the greenback elevated.
