The Reserve Bank of India has resumed active dollar sales to stabilise the rupee, echoing earlier periods of managed currency movements, supported by a strengthening reserve position amidst geopolitical tensions and elevated oil prices.
India’s foreign-exchange market is beginning to look familiar again. Traders and bankers say the Reserve Bank of India has been leaning heavily on dollar sales to keep the rupee from moving sharply, muting a bout of volatility even as oil prices remain elevated and demand for hedging dollars stays firm.
Bankers told ETBFSI that state-run lenders have repeatedly supplied dollars whenever the currency came under pressure, with intervention visible at several price points. That has helped hold the rupee in a tight band, even as Brent crude has hovered near $90 a barrel and global uncertainty has risen after renewed tensions in the Middle East.
On Monday, the rupee weakened to 95.4775 per dollar in early trade but still moved within a narrow range, according to traders. The RBI also sold dollars in every session since the previous Monday, they said. Tanay Dalal, senior vice president for business and economic research at Axis Bank, said the central bank had “appropriately intervened” to offset volatility linked to West Asia and oil. He expects the rupee to trade between 94.50 and 96.00 through the end of September.
The pattern has revived memories of the period when Shaktikanta Das was governor, when the central bank was widely viewed as a force smoothing both gains and losses in the currency. With 14-day realised volatility falling to about 2% from more than 4% at the start of August, one senior treasury official at a private bank said the market backdrop would normally justify a much wider range. Instead, the official said, the RBI has effectively laid a floor under dollar-rupee moves.
That intervention is taking place against a stronger reserve position. According to recent RBI data cited by Indian financial media, India’s foreign-exchange reserves have climbed back above $700 billion, helped by inflows encouraged by the central bank’s balance-of-payments support measures. The broader view from market participants is that the RBI is likely to keep using selective intervention to prevent disorderly moves rather than allow the rupee to swing freely.
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