The Indian rupee rebounded sharply on Thursday after hitting successive record lows in recent days, supported by strong intervention from the Reserve Bank of India (RBI). The currency ended at 96.20 against the dollar, up 62 paise from the previous close, according to Bloomberg.
The move comes at a time when the rupee almost hit 97 on Wednesday. The rupee has been under significant pressure since the onset of the West Asia conflict in late February and has weakened 5.7% during this period. In the calendar year so far, the currency has declined 7%.
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Pre-Market Dollar Sales
Currency traders said the RBI heavily intervened in both the spot and offshore markets to support the rupee, estimating around $4-5 billion. They added that the central bank sold dollars even before trading hours.
“In the last few sessions, the movement was quite sudden and sharp. I think today’s intervention was aimed at bringing that a bit under control,” said Dhiraj Nim, economist and FX strategist, ANZ Bank.
“Crude oil prices declined as hopes emerged over peace talks, which also provided support to the rupee. This has led to some risk-on sentiment,” said Ritesh Bhansali, deputy CEO, Mecklai Financial Services. Crude oil prices declined below $ 110 per barrel on Thursday and were trading around $105.
With this movement, the rupee was the top-performing Asian currency on Thursday. Most emerging market currencies also gained following a decline in oil prices.
Rate Hikes
Bloomberg on Thursday reported that the RBI is considering measures to support the rupee, including an interest rate hike.
“A rate hike is firmly on the table to support the currency. In fact, it could send a strong signal that the central bank is staying ahead of the curve on inflation risks, and FX markets would welcome such a move if it materialises. The market has already aggressively priced in a hiking cycle,” Nim said.
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He added that the further trajectory of the rupee will depend on policy response. However, as long as capital flows remain a concern, we would not be able to reverse the course for rupee. “If the pressure continues and the Middle East conflict remains unresolved, pushing oil prices higher, then I don’t think the 100 mark can be avoided,” Nim said.
TOPICSRBIThis article was first uploaded on May twenty-one, twenty twenty-six, at eighteen minutes past eleven in the night.