Rupee soars after RBI comes out firing in support

The rupee gained due to what traders described as ‘significant’ interventions by the Reserve Bank of India (RBI). It closed at 91.60/$1 on Thursday, up from its previous close of 92.15/$1.

The rupee had gained to 91.41/$1 earlier in the session.

The strength in the rupee comes despite an increase in crude oil prices and the dollar index. Brent crude oil was trading at $84 per barrel, while the dollar index was at 99. The rupee traded in a narrow 20 paise range of 91.64/$1 and 91.41/$1.

Traders expect RBI intervention to continue on Friday and the range is expected to be 91.25/$1 to 91.75/$1 on the last day of the week. “RBI did not let the rupee go past 91.61/$1, even though there was significant dollar demand. The central bank also intervened before 9:00 am, which made the currency open at 91.56/$1 in domestic markets,” said Anil Bhansali, head of treasury, Finrex Treasury Advisors.

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This aggressive intervention by RBI comes after the rupee touched a record low of 92.31/$1 on Wednesday.
Traders are, however, unsure of how long RBI will provide such large interventions, as dollar sales to defend the rupee in the currency market drain domestic rupee liquidity. “We have seen this in the past, where there is stiff intervention on one day and then the intervention abruptly stops. RBI also cannot keep intervening as aggressively as it did today (Thursday), because it then impacts domestic liquidity,” said a chief dealer at a PSU bank.

The central bank’s latest weekly data showed its foreign currency reserves were at $724 billion, covering about 11 months of imports.