MUMBAI: After being nearly absent from the forex market for a while to let the rupee find its own feet, the Reserve Bank on Wednesday stepped in forcefully to support the rupee, a day after it breached the 91 mark. This propelled the bleeding-for-long currency to the biggest single-day gain in seven months in a move seen intended to punish those betting on a one-way slide in the currency.
The rupee rose as much as 1.03% intra-day—soon after opening mildly lower than the historic low record yesterday— the most since May 23, to claw back to 90.0963. At close, the rupee gained 0.7%, cutting its losses from 6.2% yesterday. After opening lower than yesterday’s close of 91.0565, the RBI intervened in the market through state-run banks which sold dollars, multiple traders said.
Following this, the rupee closed 0.7% higher at 90.3775 on Wednesday. It had hit an all-time low of 91.14 on Tuesday. Forex dealers said this heavy-handed intervention of the monetary authority came after the rupee’s string of record lows in the current weeks, which had sparked debate over why the RBI hadn’t stepped in more forcefully to support the currency.
“The monetary authority likely intervened after it bought $5 billion via a foreign-exchange swap on Tuesday. There was a sense that the market was taking the rupee’s rapid depreciation lightly, and today the RBI has come back aggressively to dispel that view,” said VRC Reddy, head of treasury at Karur Vysya Bank. He said the central bank sold dollars around the 91 level.
Wednesday’s moves brought back memories of forceful dollar sales by the RBI in October, when it acted to quell speculation that was building against the rupee.
The rupee, which had opened slightly weaker at 91.07 compared to the previous close of 91.0565, reversed course and traded as strong as 90.25 during the day, as the cooling of crude prices also contributed to improved sentiment.
Jateen Trivedi of LKP Securities said the rupee is likely to trade in a 90.50–91.25 range in the near term. Absence of RBI intervention, delays in the trade deal with the US and continued FII outflows have weighed on the currency. Elevated gold and silver prices have further strained the import bill, he said.
Another trader said sensing that the central bank was in the market, many who shorted on the rupee the previous day bought them back to cover their positions and trim further losses.
Meanwhile, the US dollar was steady on Wednesday and near its lowest since the start of October after data showed the US labour market remained soft, leaving investors on edge about when the next rate cut from the Federal Reserve is likely to come.