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Informist, Tuesday, Nov. 26, 2024

 

By Pratiksha

 

NEW DELHI – The Reserve Bank of India's heightened vigilance and actions in the domestic spot market has almost put an end to speculative trading, preventing sharp fluctuations in the rupee's exchange rate against the dollar, according to dealers.

 

Informist had exclusively reported on Friday that the RBI has asked some banks to trim large bets against the rupee in the spot market, in a bid to prevent any speculation against the Indian currency and the subsequent volatility emanating from it, according to dealers.

 

But even before the RBI explicitly told speculators to back off, it had been keeping a close eye on the potential speculative positions building up in the spot market ever since the US presidential elections induced volatility in the market. By making enquiries about even small deals in the market, the central bank made everyone aware of its watchful gaze, dealers said.

 

The rupee settled at 84.2875 a dollar on Monday. Since the outcome of the US elections, the Indian currency had depreciated 0.5% against the greenback to hit a record low of 84.50 a dollar on Friday, before recovering sharply Monday to register only a 0.2% loss.

 

"They (RBI) are everywhere. Tracking even every $300 million-$400 million deals," a forex dealer at a private bank said. The central bank monitors forex trades through frequent calls to banks during the trading sessions, according to dealers.

 

"RBI has been checking positions at least 4-5 times a day from banks. Speculative trade has, of course, died down because of that. It feels like a trap because you don't know where the rupee will move," a dealer at a state-owned bank said.

 

The central bank's active intervention in the domestic spot and offshore non-deliverable forwards market to curb sharp fluctuations in the Indian rupee is also no secret.

 

Most dealers said the central bank's close watch on the market's day-to-day trades, or even potential trades, has led to market participants refraining from placing speculative bets on the Indian currency. Speculative trading entails buying a financial asset in hopes of making a profit when the asset's price appreciates or depreciates over time.

 

Further, the RBI's unanticipated verbal directions in the recent past have also led to a "lack of trading spirit" among traders, they said.

 

"After the RBI's calls asking us to stop positioning, people have stopped trading. There are only client flows in the market," said a senior treasury official at a big state-owned bank. "If there are no speculators in the market, there is no market making. The market is not skewed to either side. This entire thing is killing markets."

 

Market players pointed out that even when the rupee breached key levels in the past few weeks, neither knee-jerk reaction nor stop-losses had been triggered. This was partly due to the lack of heavy speculative positions in the market. The other reason was, of course, the RBI's stronghold on the currency.  

 

Case in point: Even after the rupee breached the psychologically-crucial level of 84-per-dollar in early October, the average daily intraday trading range of the domestic unit has been just 5 paise until Friday.

 

The RBI has been actively intervening in the spot market through dollar sales, expending its reserves by over $30 billion in the past six weeks, to keep the rupee under a tight leash. However, market participants are of the view that if the central bank's hypervigilance on the market continues, in some time, it may be able to keep the rupee stable without even hurting its forex buffer.  End

 

US$1 = INR 84.29

 

Edited by Tanima Banerjee

 

 

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