The rupee rallied nearly 2% this week to post its biggest weekly gain in seven months, buoyed by the Reserve Bank of India’s (RBI) aggressive measures to support the currency, which has still lost more than 6% against the dollar so far this year.
The rupee closed at 94.92 against the dollar on Friday, gaining 7 paise for the day and extending its winning streak to six consecutive sessions. The currency had hovered near the 97 mark throughout last week, touching 96.96 twice, before hitting a record low of 96.98 on May 20.
At the interbank foreign exchange market, the rupee opened at 94.75 and moved between a high of 94.71 and a low of 95.06 before settling at 94.92, up 7 paise from the previous close.
Meanwhile, the RBI’s efforts to defend the rupee have coincided with a sustained decline in foreign exchange reserves, which fell for the sixth consecutive week. Reserves dropped by $8.578 billion in the week ended October 9 to $726 billion.
From the peak of $785.7 billion in the week ended September 4, reserves have declined by $59.7 billion. The earlier peak was supported by substantial foreign currency inflows through a special concessional swap scheme for deposits from the Indian diaspora, under which banks raised a record sum of nearly $133 billion.
In the previous reporting week, reserves had fallen by $12.952 billion, following a drop of nearly $19 billion in the week before that, one of the steepest declines on record.
Dilip Parmar, senior research analyst at HDFC Securities, attributed the rupee’s recovery this week to the RBI’s aggressive defence strategy. He sees immediate support for the spot rupee near 94.70, with resistance around 95.50.
Last Saturday, the RBI announced a series of measures to support the currency, including redirecting oil-related dollar demand away from the market, raising the cost of hedging against rupee depreciation and cutting the limit for banks’ dollar purchases without underlying exposure documentation by 95% to $5 million.
Traders and analysts said the measures could ease depreciation pressures in the near to medium term. However, a sustained recovery without continued central bank intervention would require a broader improvement in market conditions.