Informist, Friday, Nov 3, 2023
By Pratiksha
NEW DELHI – Even though the Indian currency hit a record low of 83.29 a dollar this week, market participants are not looking at a knee-jerk move in the unit going ahead for they believe that the central bank will continue to keep the rupee under its patronage. The sentiment in the currency market seems to be in line with Reserve Bank of India Governor Shaktikanta Das' remarks of late that the central bank intervenes in the market only to prevent excess volatility and not to target any particular level.
"We don't have any specific level. It's not a question of defending a particular level of rupee. That policy of the Reserve Bank is a time-tested established policy which we are adhering to," Das had said at a press conference after the Monetary Policy Committee's meeting last month.
In August, when the rupee fell below the 83-per-dollar mark for the first time in 10 months, market players were betting big on the rupee testing 84-a-dollar if the crucial support of 83.30-per-dollar breaks. Contrary to that, now, when the rupee is hovering so close to that crucial support, traders don't expect the local currency to fall beyond 83.50 in the near term, all thanks to the RBI's unflinching defence of the exchange rate in the past few months.
"The outflow pressure has built up, which imparts this upside bias on the USDINR in the near term, but it's pretty contained, in the sense that nothing that the RBI cannot and will not manage," said Dhiraj Nim, FX strategist-Global Research at ANZ Banking Group. "They have been clinging on to their defined range very solidly even now, because hopefully at some point this pressure will recede."
Some dealers also highlighted that even if the rupee has touched a lifetime low, it has done so merely by 0.0050 paisa, indicating the central bank's unwillingness to let go of the currency.
Market participants also pointed out that the central bank has adequate foreign exchange reserves to keep its intervention strategy intact. India's foreign exchange reserves rose to $586.11 bln as on Oct 27, up $2.58 bln on week, posting its largest weekly gain in eight weeks.
They said that the RBI helped the rupee keep its footing in the face of a sharp rise in US Treasury yields and dollar index last month. Now, when the dollar index seems to be cooling off on expectations that the US Federal Reserve is done hiking rates, it is unlikely that the central bank will let go of its strong hold on the currency.
As at 2050 IST, the dollar index, which measures the strength of the greenback against a basket of six major currencies, had fallen over 1% since the Federal Open Market Committee's decision on Wednesday.
"There is still a bit of turbulence in the market about what the Fed would do, but some time from now the market will have clarity, and all this upside momentum in US yields will ease. That is what the RBI may also be looking at," said a dealer at a big corporate.
Dealers said even if the cycle turns, and the dollar weakens sustainably, RBI will be keen to shore up its forex buffer, which will make the scope for appreciation in the rupee limited. This, they said, will keep the rupee in a tight range of 82.50-83.50 in the medium-term and thus, stable.
Fresh unprecedented headwinds could still cause a flurry in the currency market, but for now, it seems like 'stability' is the name of the game. End
US$1 = 83.2850 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Ashish Shirke
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