India’s central bank has
mounted an aggressive defence of the rupee this week, deploying
an estimated $12 billion to contain the fallout from an
escalating West Asia war that has pummelled markets and pushed
the Asian currency to an all-time low, according to seven
bankers.
The figure is the median of estimates bankers shared with
Reuters, with the projections ranging from $9 billion to more
than $15 billion.
The scale of the intervention underscores the challenge the
Reserve Bank of India faces in containing volatility triggered
by the West Asia conflict that has entered its seventh day.
The conflict has widened across the Gulf, pushing oil prices
up about 16% this week, leading to $2 billion of foreign
outflows from Indian equities and spurring importers to increase
hedges of near-term payment obligations.
The RBI’s heavy intervention comes against the backdrop of
India’s foreign-exchange reserves, which at over $723 billion,
are among the largest in the world.
All the bankers spoke on condition of anonymity as they are
not authorised to speak publicly.
The Reserve Bank of India, which says it intervenes to curb
FX volatility and not target a rate, did not respond to an
emailed request for comment.
CENTRAL BANK CASTS A WIDE NET
“We have seen the RBI’s footprint across spot, forwards,
futures and the NDF (non-deliverable forward) this week. The
bulk of the activity appears to have been in the NDF,” one of
the bankers, who works at a state-owned lender, said.
The bankers said that the intervention was heaviest on
Thursday, when the RBI sold dollars before the local market
opened, a tactic it has deployed in the past when depreciation
pressures intensify.
Pre-market intervention tends to have an outsized impact
since liquidity is relatively low at that time, allowing modest
dollar sales to sway the currency sharply while resetting
sentiment.
After an initial push, the RBI typically needs to continue
selling dollars through the day to reinforce the price signal
and prevent the currency from slipping back, bankers said.
On Thursday, the Asian currency rallied by nearly one rupee
in the interbank order matching system within a few minutes on
the back of the pre-open intervention, moving from around 92.10
to about 91.10 per dollar.
Since then, the rupee has trimmed a part of its rally, and
was quoting at 91.68 per dollar at 2:00 p.m. IST on Friday.