MUMBAI: The rupee, which has been bleeding for long, has rallied sharply on Tuesday after the RBI’s heavy-handed intervention, triggering stop losses for speculators betting against the currency. The rupee which had sniffed at the sensitive 88-mark Monday, rallied to close at 86.888, logging its biggest one-day gain since March 2023.
This is significant as the equity market had a mayhem as the market feared the deep impact of the new 25% tariff plans that US president Donald Trump announced on Monday against steel and aluminium imports.
In early trade the rupee rose to a high of 86.69 before trimming its gains to close 86.888, up over 0.8% from its previous close of 87.577.
The Reserve Bank sold heavily dollars before the spot market opened, via state-run banks, which persisted after the market opened, a trader at a state-rub bank told TNIE.
The intervention "is surprising and has triggered a blood bath for longs," a treasury official of a private bank said, adding as the heavy-handed intervention came days after the governors Sanjay Malhotra ruled out defending the unit out of way or setting a level for the rupee which till yesterday had lost more than 5% this fiscal so far.
The sharp rally forced traders to exit long positions on the dollar-rupee pair, adding to the currency's tailwinds.
The RBI was also conducting dollar-rupee buy/sell swaps to mitigate the impact of its spot dollars sales on liquidity in the banking system, another trader said.
The dollar index was little changed at 108.3 while other Asian currencies declined between 0.1-0.7% after Trump imposed 25% tariffs on all steel and aluminium imports.
"We note that the accentuated moves in rupee-dollar pair saw lately has brought the currency to near fair value. However, given the unrelenting global uncertainties in the near term we expect the pressure on the rupee to continue," Kotak Mahindra Bank said in a note, adding RBI will continue to support the rupee to hammer out any one-way, linear expectations.