The Reserve Bank of India’s aggressive intervention led the rupee to rise on Wednesday, posting its biggest single-day gain since June 24. Rupee rose almost 1% during intra-day to touch the high of 87.99. It closed at 88.07, up 73 paise from the previous close.
“The RBI has been protecting the rupee at 88.80 for a while, signalling that it is not comfortable with the currency breaching 89. On Wednesday, the intervention became aggressive majorly to cut long positions built by traders who were speculating,” said a forex dealer at a private bank. The RBI was active both in onshore and offshore markets, dealers said.
“The RBI likely sold dollars worth $5 billion during the day to protect the rupee. The low of the pair was at 87.80 while traders might have come to buy to cut their own short positions. It took the rupee higher to 88.39 where selling resumed,” said Anil Kumar Bhansali, head of treasury and executive director, Finrex Treasury Advisors LLP.
RBI’s heavy dollar sales has brought down the YTD depreciation of rupee to 3.05% from 3.9%. The rupee was the best-performing Asian currency on Wednesday, followed by Thai baht at 0.75% and Taiwanese dollar at 0.39%.
India’s rupee has hit several new lows in the past month because of US tariffs H1-B visa shocks.
“The market sentiment has improved with higher expectation of the trade deal with the US and FPI inflows into equity market in the last few sessions. This provided the RBI room for heavy intervention through dollar sales…” said VRC Reddy, treasury head, Karur Vysya Bank.
The rupee has been underperforming its Asian peers despite the dollar weakness. The real effective exchange rate (REER) fell to 98.79 in August from 100.19 in July, the lowest since February 2019. A REER close to 100 indicates that the rupee is fairly valued.
