The weakened to
a one-week low on Wednesday, as hostilities in West Asia
pushed
while a drop in local stocks worsened the strain on the
currency.
Traders said state-run banks were selling dollars, most
likely on behalf of , helping limit the
fall in the rupee. These banks were also spotted conducting
dollar-rupee buy/sell swaps, in line with recent sessions.
The rupee fell about 0.5 per cent to 95.7825 per dollar,
tracking declines in oil-sensitive regional peers like the
Indonesian rupiah, which fell to a record low, and the
Philippine peso.
Far-tenor dollar-rupee forward premiums, the cost of hedging
forex exposure, declined as banks dealt the swaps, with the
1-year implied yield down 5 basis points to 2.99 per cent.
The scale of swaps by the central bank over the last two
weeks has surprised the market and left it wondering why the
activity is so aggressive, a trader at a private bank said.
Steady RBI hand amid oil prices surge
Brent crude rose more than 1 per cent after hostilities in
the Gulf flared anew, with the U.S. military saying Iranian
missile attacks on Bahrain, Kuwait and other regional targets
were either thwarted or failed.
“In many ways, the RBI has become the steady hand shielding
the currency from external shocks,” said Amit Pabari, managing
director at FX advisory firm CR Forex.
The focus now is squarely on the RBI’s policy decision on
Friday. A majority of economists polled by Reuters expect it to
keep rates unchanged, but a section of the market expects
measures to support the rupee.
“We believe an FX package and rate hikes are coming, but the
precise timing remains uncertain,” economists at HSBC said in a
note. HSBC says the policy is “a close call” but expects a hold
on Friday as inflation remains below target.