Supporting Rupee
Do not expect RBI's heavy intervention in FX market to sustain, says Nomura
This story was originally published at 14:51 IST on 12 February 2025
Register to read our real-time news.Informist, Wednesday, Feb. 12, 2025
MUMBAI – The Reserve Bank of India may have significantly intervened on Monday and Tuesday to strengthen the rupee but this level of action is not expected to be sustained, Nomura said in a report on Wednesday.
Since Monday, the Reserve Bank of India has stepped up its support for the rupee drastically, with market participants estimating the central bank's dollar sales in the domestic spot market at nearly $15 billion on Monday and Tuesday. The RBI is likely to have sold almost $10 billion in the offshore non-deliverable forwards market as well, together on Monday and Tuesday. The central bank has been actively intervening in the currency market to support the rupee on Wednesday as well.
The rupee has been under pressure due to a globally strengthening dollar as US President Donald Trump threatened to slap tariffs on countries running a trade surplus with the world's largest economy and due to strong foreign fund outflows. Since the end of 2024, the rupee has depreciated by as much as 2.7% against the greenback before the pullback this week.
Nomura expects the central bank to allow foreign exchange flexibility, given underlying global and local foreign exchange drivers and the extent of foreign exchange reserves and forward dollar selling that has happened in recent months. The RBI's net outstanding sales of dollar/rupee forward contracts have been consistently rising in recent months and climbed to a new high of $67.94 billion at the end of December, $9.09 billion higher from a month ago. Moreover, India's foreign exchange reserves were at $630.61 billion as of Jan. 31, down by over $74 billion from the record high of $704.89 billion hit in late September.
Nomura estimates that the central bank has net sold $111.2 billion or around 18.0% of foreign exchange reserves since the headline reserve level peaked in September. "We are still not too concerned with the RBI's ability to manage INR (rupee), due to its high FX reserve adequacy at 240% (IMF base measures), as well as authorities' ability to secure external sources of financing (if needed)," it said.
End
US$1 = INR 86.88
Reported by Pratiksha
Edited by Saji George Titus
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