How the RBI intervened to arrest rupee’s fall – The Economic Times

Clipped from: https://economictimes.indiatimes.com/markets/forex/how-the-rbi-intervened-to-arrest-rupees-fall/articleshow/82035521.cms

SynopsisThe central bank, according to market sources, net sold an estimated $600 million in the exchange traded futures market to arrest the rupee’s free fall against the dollar amid apprehension that a renewed lockdown, triggered by a second wave of Coronavirus may scuttle a nascent economic recovery.

MUMBAI: The Reserve Bank of India Monday swung into action after the rupee crossed the psychological mark at 75 for the first time since the peak of lockdown last year in August.

The central bank, according to market sources, net sold an estimated $600 million in the exchange traded futures market to arrest the rupee’s free fall against the dollar amid apprehension that a renewed lockdown, triggered by a second wave of Coronavirus may scuttle a nascent economic recovery. Spot market too witnessed parts of dollar selling.

RBI could not be immediately contacted for comments.

“A large-scale unwinding of offshore positions triggered a sharp drop in the rupee value, which was also accentuated by sale offs in equities,” said Bhaskar Panda, executive vice president at HDFC Bank. “Some state-owned banks were seen selling dollars,” he said

The Rupee lost 0.42 percent to close at 75.06 a dollar Monday versus 74.75 Friday, show Bloomberg data, compiled by ETIG.

During the day, the local unit touched 75.15, the highest level since August 04 last year during which the country’s economic activities came to a screeching halt amid a virus-induced lockdown.

Earlier in the day when the rupee hit intra-day high some state-owned banks were seen selling dollars in the futures market, a move that arrested the local unit’s drop against the greenback immediately.

“The scene has been taking a different turn since RBI policy last week,” said Anindya Banerjee, currency analyst at Kotak Securities. “With US bond yields rising, global investors are now ready to bet on dollar-backed assets exiting emerging markets. This in turn, prompted to cut speculative bets that were short on the dollar.”

“The scene has been reversing since past few working days adding to the rupee’s fall,” he said.

Since April 5, the rupee has been extending losses against the dollar. Since then, the local unit has lost 2.40 percent.

Experiencing the rupee fall sharply, overseas investors with uncovered investment exposure had to cut their position, further exacerbating the pressure. Currency traders said the recent rupee weakness is also indicative of massive unwinding in the carry positions.

When investors borrow from a cheap source, like in developed economies where rates are higher, only to invest in high-yielding currencies including the Rupee. In market parlance, it is called carry trades.

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