India’s central bank stepped in forcefully to support the Rupee on Wednesday, selling US Dollars in the foreign exchange market, bankers said, in a move reminiscent of its earlier robust attempts to halt the currency’s steady slide.
Following the intervention, the Rupee surged to an intraday peak of 89.75 per Dollar on the interbank order-matching platform, recovering from levels close to 91.00 seen beforehand. It was most recently quoted at 90.28.
At around 91 to the Dollar, the Rupee looks excessively weakened. The central bank had taken a relatively hands-off approach to managing the foreign exchange market in December, until now, say analysts.
Wednesday’s intervention echoed the Reserve Bank of India’s (RBI) moves in October and November, when it acted forcefully on three occasions to break persistent one-sided pressure on the Rupee, Reuters reports.
In each case, the RBI sold large amounts of Dollars in both the spot and non-deliverable forward (NDF) markets, sparking sharp intraday turnarounds in the currency.
Unlike earlier instances, when intervention took place ahead of the local market opening, Dollar selling on Wednesday occurred soon after onshore trading got underway, according to a banker who asked not to be named as he was not authorised to speak to the media.
The move followed a decline of more than 1% over the previous four sessions, during which the Rupee notched a new record low each day.
The period was characterised by persistent Dollar demand and the Rupee’s divergence from broader Asian currency trends, with traders pointing to growing interest in speculative short positions.
Considering the Rupee’s recent behaviour, the likelihood of a decisive RBI intervention was high, according to a bank currency trader.
He added that the central bank aims to curb one-sided moves that could fuel speculative attacks and heighten hedging by importers.
Reuters had reported on Tuesday that bankers were already warning of the possibility of another aggressive RBI intervention.
Before the RBI stepped in on Wednesday, the Rupee lagged behind its Asian counterparts, declining 1.8% in December through Tuesday, while most regional currencies remained flat or posted modest gains.