USD v INR: After slipping past the 91 mark against the US dollar in the last trading session, the Indian rupee made a smart comeback on Wednesday, December 17, amid reports that the central bank aggressively sold dollars to support the currency.
The rupee rose as much as 1%, the most since May 23, to 90.0963, according to a Bloomberg report.
“At about 91, the rupee appears overly depreciated. The central bank had stayed relatively light on FX management in December (until now),” VRC Reddy, treasury head at Karur Vysya Bank, told agencies. He said the central bank sold dollars around the 91 level.
RBI jumps in to support rupee
The intervention by the Reserve Bank of India (RBI) followed a sharp slide in the Indian rupee to record lows in recent weeks, prompting debate over why the central bank hasn’t stepped in to arrest the slide. According to traders, the RBI likely intervened after it bought $5 billion of dollars via a foreign-exchange swap on Tuesday.
A Reuters report said this intervention on Wednesday mirrored the RBI’s actions in October and November, when it stepped in aggressively on three occasions to counter persistent one-way movements in the rupee.
On each occasion, the RBI sold dollars heavily in both the spot and non-deliverable forward (NDF) markets, triggering sharp intraday reversals.
Reuters had reported on Tuesday that bankers had begun flagging the risk of a repeat of the RBI’s heavy-handed intervention.
The central bank’s action will cause an unwinding of speculative positions for now, Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors was quoted as saying by Bloomberg.
Rupee down 2% in December
Before today’s sharp bounce, the Indian rupee was down almost 2% in the month of December amid sustained foreign outflows and a deadlock on the India-US trade deal, denting sentiment.
The fall also made the rupee the worst-performing major currency in Asia.
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.
(With inputs from agencies)
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