More Stories

Informist, Tuesday, Nov. 5, 2024

 

By Pratiksha

 

NEW DELHI – The Reserve Bank of India has taken its defence of the rupee up several notches, with the central bank said to have sold almost $5 billion in recent days to prevent a sharp fall in the exchange rate ahead of the US presidential elections.

 

The rupee, which continues to hit fresh record lows against the greenback despite the RBI’s interventions, faces a difficult Wednesday when volatility is expected to be significantly higher once counting begins in what is set to be a close race between Democrat candidate and Vice-President Kamala Harris and her Republican opponent Donald Trump. Adding to the RBI’s concerns will be the volatility induced by the expiry of its non-deliverable forwards contracts, also on Wednesday. Depending on whether or not the central bank chooses to roll over the contracts, the onshore exchange rate of the rupee can come under pressure. According to dealers, ever since foreign outflows picked up around a month ago, the RBI has been entering into buy/sell forward contracts in the NDF market to defend the rupee. These contracts are now going to expire.
 

"Around $5 billion-$6 billion (of dollars sales by the RBI) in the last 3-4 days is a possibility. $1 bln a day has become a normal thing," a senior treasury official at a state-owned bank said. "They (RBI) are compensating for the outflows on a per-day basis now."

The RBI, whose foreign exchange reserves hit a record high of more than $700 billion in late September, has been selling heavily over the last one month to prevent the rupee from falling sharply amid huge foreign outflows. The central bank has also been aggressively intervening in the offshore NDF market through dollar sales to support the rupee, dealers said.

In the four weeks ended Oct. 25, the Indian central bank's foreign exchange reserves were down a massive $20 billion as it allowed the exchange rate to weaken only gradually past the 84-a-dollar mark.

 

October was a brutal month for Indian financial markets, with the threat of Trump returning to power in the US intensifying and stimulus measures announced by China to support its faltering economy resulting in outflows of $11.47 billion--the most since $15.92 billion exited Indian shores in March 2020 when the coronavirus pandemic hit the country, according to data from the National Securities Depository Ltd.

 

"See, the game is all about keeping it (rupee) steady," said a treasury head at a private bank. "One is not surprised if they (RBI) are going too big on spending the dollars. It is part of the game."

According to latest data available from the RBI, the central bank had sold $88.39 billion on a gross basis in the first five months of 2024-25 (Apr-Mar), more than eight times the amount it had sold in the same five months of FY24. To be sure, the RBI is only flexing the muscle it has built up over the years, with Governor Shaktikanta Das often comparing the central bank's foreign exchange reserves to an umbrella it unfurls to protect the economy from the rain, which is a volatile exchange rate.  End

 

US$1 = INR 84.12

 

With inputs from Siddharth Upasani

Edited by Akul Nishant Akhoury

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2024. All rights reserved.