RBI intervention helps the Indian Rupee avoid record-low
Illustration of an Indian rupee note.
The Indian rupee remained practically steady on Wednesday, owing to a possible intervention by the Reserve Bank of India (RBI), which helped the currency escape a record low, according to traders. At 10:00 a.m. IST, the rupee stood at 83.56 against the US dollar, hardly changingfrom its previous close of 83.5650.
RBI's strategic intervention in the NDF market
Traders said the RBI most likely intervened in the non-deliverable forwards (NDF) market before the local spot market opened at 9:00 a.m. IST. The goal of this intervention was to keep the rupee stable. Routine interventions by the RBI, especially in the NDF market, have consistently supported the currency in recent sessions. "The RBI's intervention in the NDF market has changed...We are now quite clear and explicit that the RBI is involved in the forward market," RBI Governor Shaktikanta Das said at a post-monetary policy press conference on Friday.
Shift in RBI's tactics to limit volatility
The central bank's strategy for managing rupee volatility has shifted, with a concentration on non-deliverable forwards rather than direct spot market operations. Market watchers have recognised this shift in methods, and Reuters has previously reported on it. The RBI's strategic action aims to create a more stable exchange rate environment in the face of altering market conditions.
Market reactions and future expectations
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Local oil companies have placed dollar bids, but the currency is expected to trade in a restricted range due to the RBI's indication to the market that it will intervene to prevent further devaluation. "The RBI has signalledto the market that it will prevent further weakness," a foreign exchange trader at a state-run bank said. The dollar index held at 105.3, while most Asian currencies remained range-bound as investors awaited critical US consumer inflation data and the Federal Reserve's policy announcement later that day.
The Fed is expected to hold rates steady, but new interest rate estimates will be widely watched. "Asia FX may face volatility from a potential upward shift in the Fed's median dot plot, which could push US yields and the US dollar higher," said Lloyd Chan, senior currency strategist at MUFG Bank.
(With inputs from Agencies)