Mumbai India’s central bank will
tolerate a weaker rupee as the country’s external sector
confronts multiple headwinds including a wider trade gap and
stalling of dollar inflows into the world’s fifth-largest
economy, three sources familiar with the central bank’s thinking
told Reuters.
The Reserve Bank of India (RBI), which had supported the
rupee through aggressive interventions via dollar sales until
last month, has allowed the rupee to fall 1.3% in the last seven
trading sessions to a record low of 90.42.
The rupee, down 5.5% on year, is Asia’s worst performing
currency.
By signaling tolerance for a weaker rupee, the central bank
is indicating that it will intervene mostly to curb sharp
volatility or on any signs of a speculative build-up but not
defend any specific level on the rupee, the sources said.
“It doesn’t make sense to spend reserves when fundamentally
everything is against the currency,” said one of the sources,
who commented on condition of anonymity as they were not
authorised to speak to the media.
The RBI did not immediately respond to an email seeking
comment.
“As and when fundamentals and real dollar demand dictates,
the central bank does let the rupee move more than it normally
would,” the second source said.
India is one of the worst hit markets in terms of outflows,
with foreign investors selling stocks amounting to $17 billion
so far this year. At the same time, foreign direct investment,
trade, and offshore fundraising flows have slowed down.
While the currency’s fall below the psychologically
important 90 per dollar mark has garnered attention and could
embolden speculators, the central bank can step in to stamp
those out as needed, a third source said.