The Indian rupee rose for a second consecutive session on Friday, supported by heavy intervention from the Reserve Bank of India (RBI), according to currency traders and analysts. The currency gained 43 paise to close at 95.77 against the dollar, making it the Asia’s top performing currency, according to data from Bloomberg.
The RBI had also intervened aggressively on Thursday to support the rupee after it nearly touched 97 against the dollar on Wednesday. Over the past two days, the currency has gained more than 1% with dollar supply from the central bank.
Geopolitical Friction
The rupee has been under significant pressure since the onset of the West Asia conflict in late February and has weakened 5.3% during this period. In the calendar year so far, the currency has declined 6.5%.
“It was largely a one-sided intervention by the central bank, which helped pull the currency back from record lows to the current levels. Whenever it moves by around 2.5%-3%, the central bank tends to step in more aggressively,” said a dealer at a foreign bank.
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“Over the past two days, the RBI has intervened aggressively in the market, which was the main driver behind the appreciation. Crude oil prices have also eased somewhat during this period, amid hopes of a positive outcome in the geopolitical situation,” said Dilip Parmer, research analyst at HDFC Securities.
Crude oil prices were trading around the $105-per-barrel mark over the past two days, lower than the earlier level of above $110 per barrel.
“Volatility will likely remain elevated in the near term due to ongoing geopolitical uncertainties. In the near-term, the rupee is expected to trade in a broader range of around 95 to 98,” added Parmer.
Real Effective Exchange Rates
The real effective exchange rate (REER) fell further to 90.96 in April from 92.57 in March, the latest bulletin showed. REER is a weighted index that compares a country’s currency against a basket of 40 foreign currencies, adjusted for inflation.
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Barclays in a report said that India could try to implement measures to reduce or at least smooth out importer dollar demand, encourage more exporter dollar conversions, re-introduce FCNR deposits at concessional rates, relax ECB norms, ease hedging norms for foreign investors, and expand FAR limits for bond investors.
“While such measures may slow the pace of depreciation, we continue to see a weaker path for the currency and see a path to USDINR 98.00 in the weeks ahead, albeit at a less rapid clip than we have seen over past weeks,” the report noted.
TOPICSRBIRupee vs us dollarThis article was first uploaded on May twenty-two, twenty twenty-six, at seven minutes past eleven in the night.