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Informist, Wednesday, Aug 7, 2024

 

--Dealers:RBI deploying verbal intervention to support rupee at 84/$1 

--Dealers: RBI asked few bks to avoid big bets vs rupee in spot Tue 

--Dealers: RBI intervened heavily in NDF market Tue 

--Dealers: RBI asked some bks to avoid big bets vs rupee in NDF Tue 

 

By Pratiksha and Kabir Sharma

 

MUMBAI – The Reserve Bank of India asked some banks on Tuesday to avoid placing large bets against the rupee in the offshore non-deliverable forwards and domestic spot market to keep the domestic currency from falling below the psychologically crucial level of 84 per dollar, dealers said. The Indian unit, which fell to a record low of 83.9650 a dollar on Tuesday, fell further to 83.9725 a dollar today.

 

The central bank nudged some big state-owned, private and foreign banks to stop placing large positions against the rupee, currency dealers told Informist. "It was not a mandatory direction, but we were told to consider not building more positions," a dealer at a state-owned bank said on the condition of anonymity.

 

The central bank intervened heavily in the offshore NDF market on Tuesday by selling dollars when the rupee was quoted at around 84.00 a dollar. Following the RBI intervention, the rupee opened at 83.8450 a dollar in the domestic spot market on Tuesday. Dealers said the RBI's verbal intervention in the currency market is likely aimed at preventing the Indian unit from falling below the crucial level of 84 per dollar. 

 

"They wanted to curb speculation that was building up and prevent it (rupee) from going to 84 (a dollar)," a dealer at a foreign bank said.  

 

Dealers said the RBI has been very watchful of rising speculative bets in the market and the subsequent volatility emanating from it and Tuesday's actions seem to be a step towards combating it. "The rupee may be falling but they (RBI) don't want volatility. That is the key," a dealer at a private bank said.  

 

The RBI typically intervenes in the offshore NDF market to prevent a spillover of the speculative bets building in the offshore currency market to the onshore market. The Indian unit fell 0.1% against the dollar on Monday as foreign portfolio investors withdrew funds from emerging markets following a global sell-off in equities. Investors' risk appetite took a beating owing to worries of a potential recession in the US and the unwinding of Japanese yen carry trade. The rupee fell another 0.1% against the dollar on Tuesday.

 

Notably, the central banks' actions to support the Indian currency come at a time when India's foreign exchange reserves are near an all-time high. India's foreign exchange reserves were at $667.39 bln rupees as of Jul 26, slightly lower than the record high of $670.86 bln. 

 

In a similar move in August last year, the RBI carried out a verbal intervention by asking some banks to stop taking fresh arbitrage positions in the offshore NDF market. 

 

The RBI has allowed the rupee to depreciate gradually since last month, with the currency falling almost 0.6%. But looking at how the central bank is going out of its way to support the currency, market participants now do not expect the rupee to fall past 84 a dollar easily.  End

 

US$1 = 83.96 rupees

 

Edited by Saji George Titus

 

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