The Reserve Bank of India (RBI) took decisive action to ease the downward pressure on the Rupee on Monday, which had intensified after the currency fell past a key level on Friday, bringing the psychological 90-mark into focus.
At the time of writing, the Rupee was last quoted at 89.16 per US Dollar, up 0.35% on the day.
Ahead of the 9am IST market open, the interbank order-matching system had indicated a potential drop past 89.50 to a new record low.
However, the RBI’s intervention changed the trajectory. The central bank likely sold Dollars both on the order-matching platform and in the non-deliverable forward market, boosting market sentiment. As a result, the Rupee opened at 89.15.
The Indian currency had fallen past 88.80 on Friday, a level that bankers said the central bank had maintained for weeks, triggering a wave of downward pressure expected to continue this week, Reuters reports.
After Friday’s drop, discussions among bankers focused on the risk of the Rupee quickly approaching the 90-level.
The RBI’s aggressive Dollar sales on Monday were widely viewed as a move to curb the Rupee’s decline before it gained momentum.
A senior treasury official at a private-sector bank described the current environment for the Rupee as “very heavy,” noting that no clear catalyst has emerged to stabilise sentiment around the currency.
Traders added that the lack of progress on a US-India trade agreement has further dampened sentiment, removing a potential policy boost that could have helped counterbalance India’s widening trade deficit and the slow pace of portfolio inflows.
Moreover, HDFC Bank reflected a similarly cautious stance, noting that any boost from a potential US-India trade deal might be short-lived.
Meanwhile, RBI Governor Sanjay Malhotra on Thursday attributed the Rupee’s recent weakness to elevated Dollar demand, which he said could ease if India and the US reach a trade agreement.
He added that India’s foreign exchange reserves provide “ample protection” for the currency.