RBI Intervention
RBI comes to rupee's rescue, sells nearly $15 bln in spot since Mon
This story was originally published at 11:56 IST on 11 February 2025
Register to read our real-time news.Informist, Tuesday, Feb. 11, 2025
By Pratiksha
MUMBAI - The Reserve Bank of India has ramped up its support for the Indian rupee drastically, with market participants estimating the central bank's dollar sales in the domestic spot market at nearly $15 billion since Monday. The RBI is likely to have sold almost $10 billion in the offshore non-deliverable forwards market as well since Monday, they said.
"The market has gone haywire. Nobody expected this..it will take some time for the market to adjust from here," said a senior treasury official at a state-owned bank. "RBI has gone all out to support the rupee in a very short span, maybe just to prove a point that they are not going anywhere."
On Tuesday, the rupee jumped 84 paise to a high of 86.6400 a dollar, logging its biggest single day gain in over two years. The RBI's aggressive intervention in the spot market on Monday had rescued the Indian unit from its lifetime low of 87.9500 a dollar to close at 87.4750 a dollar.
Market participants are of the view that the central bank may have amped up its intervention to drive away traders' speculatory bets against the local unit, which had picked up since last month after a sharp decline in the currency.
"The immediate reason that seems likely is of course to stop out speculators from the market," said a dealer at a foreign bank. "I am sure this may have shook away short term speculators, but it's unlikely this strategy will help materially for long term speculatory positionings."
After an over one-year period of utmost stability in the rupee, the Indian currency had been on a depreciating spree since December, with a fall of almost 3.5% till Friday. The period coincided with the time RBI Governor Sanjay Malhotra joined the office, sending the market a signal that the new chief is willing to allow flexibility in the exchange rate. 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.
Market participants flagged that the RBI's actions also caught them off guard in light of the governor's recent statement around the rupee on Friday. While detailing the outcome of the Monetary Policy Committee's sixth bi-monthly meeting for 2024-25 (Apr-Mar), Malhotra said that the rupee's exchange rate is determined by market forces and the Reserve Bank of India believes in the efficiency of the market. "Our stated objective is to maintain orderliness and stability without compromising market efficiency," he said. "The Reserve Bank believes in the efficiency of the market that we have in India for forex (foreign exchange)."
End
US$1 = INR 86.88
Edited by Vandana Hingorani
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