Mumbai India’s central bank
intervened aggressively in currency markets on Wednesday,
selling dollars to prop up the rupee, bankers said, echoing its
earlier heavy-handed efforts to stem a one-way decline in the
currency.
The rupee rallied to an intraday high of 89.75 against the
US dollar on the interbank order matching system, from near
91.00 seen prior to the intervention. It was last trading at
90.28.
“At about 91, the rupee appears overly depreciated. The
central bank had stayed relatively light on FX management in
December (until now),” said VRC Reddy, treasury head at Karur
Vysya Bank.
The intervention on Wednesday matched Reserve Bank of
India’s actions in October and November, when it stepped in
aggressively on three occasions to disrupt persistent one-way
moves in the rupee.
In each instance, the RBI sold dollars heavily in both the
spot and non-deliverable forward (NDF) markets, triggering
intraday reversals.
Unlike previous episodes, when intervention occurred before
the local market opened, dollar sales on Wednesday came shortly
after onshore trading began, said a banker, who requested
anonymity as he is not authorised to speak to the media.
The intervention followed a more than 1% slide over the
previous four sessions, during which the rupee hit fresh
lifetime lows each day
The period was marked by sustained dollar demand and the
rupee’s disconnect from broader Asian currency movements, with
traders citing rising interest in speculative short positions.
Given the rupee’s recent price action, the risk of a
decisive RBI intervention was high, a currency trader at a bank
said.
The central bank wants to prevent one-way moves that can
encourage speculative runs and intensify importer hedging, he
added.
Reuters had reported on Tuesday that bankers had begun
flagging the risk of a repeat of the RBI’s heavy-handed
intervention.
Prior to the RBI’s action on Wednesday, the rupee had
underperformed its Asian peers, weakening 1.8% in December
through Tuesday, while most regional currencies were flat or
slightly higher.