The Indian rupee is holding strong, as the currency bounced back in the 94 range against the dollar. The Indian rupee extended its rally, gaining nearly 2% this week, hitting the 94.95 per dollar mark in early trade on Wednesday after opening at 95.01 against the greenback. The domestic unit was up 0.3% on the day.
Traders cited by Reuters reported that state-run banks likely sold dollars on behalf of the RBI to help cushion the currency’s fall.
Nirmala Sitharaman says RBI to contain currency volatility
The Indian rupee’s bounce in the 94 range against the dollar comes just a day after Finance Minister Nirmala Sitharaman said that the RBI is not trying to fix the rupee but rather contain its volatility. RBI Governor Sanjay Malhotra has repeatedly said that the central bank will do what is necessary to ensure orderly movement in the rupee.
RBI Governor highlights need for financial stability
In an interview with Moneycontrol on Tuesday, the governor said that recent forex measures were introduced to curb speculative bets on the currency. He said these steps will ensure that currency hedges are reserved for businesses with genuine exposure. “The mandate of price stability cannot be achieved without financial stability, as a stable financial system is essential for the effective transmission of monetary policy,” Malhotra said.
“The Bankers have sought relief from RBI on the new rupee defence measures to which RBI has still not responded,” said Anil Kumar Bhansali, head of treasury at Finrex LLP.
RBI measures to curb rupee depreciation
On October 10, the RBI announced three-pronged measures to support the local unit. It opened a special dollar window for state-owned oil marketing companies (OMCs), tightened restrictions on foreign exchange derivatives and imposed additional reserve requirements on banks.
While these steps have helped ease pressure on the domestic currency, banks have raised concerns about these restrictions on derivatives and the reserve requirement, noting their higher costs and liquidity impact.
Outlook for Rupee
“The next key level to watch is 94.80. If the rupee breaks below it and oil companies stay away from direct dollar buying, we could see another 50–75 paise appreciation, as panic dollar selling by exporters may accelerate the move,” said Amit Pabari, Managing Director at CR Forex Advisors.
(With agency inputs from Reuters)
