RBI rushes in to cut the Rupee’s sudden drop, likely bought $5 bn – The Economic Times

Clipped from: https://economictimes.indiatimes.com/markets/forex/rbi-rushes-in-to-cut-the-rupees-sudden-drop-likely-bought-5-bn/articleshow/88397013.cmsSynopsis

The Indian Rupee rebounded from an 18-month low last week after the central bank sold dollars in the spot and futures market. The local unit Monday extended its three-day gaining streak.

MUMBAI: The Reserve Bank of India is estimated to have sold about $4-5 billion in the past few trading sessions since last week to smoothen the movement in the rupee against the US dollar amid a sudden spike in foreign portfolio investors trimming India exposure.

The Indian Rupee rebounded from an 18-month low last week after the central bank sold dollars in the spot and futures market. The local unit Monday extended its three-day gaining streak.

The central bank is said to have sold about a billion dollars on Monday alone as state-owned banks were seen selling the greenback in the spot market, three market sources told ET.

A large Mumbai-based conglomerate is likely to have sold a good sum of dollars either for trading gains or export requirements.

RBI did not comment on the matter.

“The suspected RBI intervention has helped arrest the rupee’s losses against the dollar,” said Anindya Banerjee, currency analyst at Kotak Securities. “The local unit turned out to be the best performing Asian unit in the past few days due to RBI dollar selling.”

“Currency market swings may not die down unless the Omicron threat dims,” he added.

The rupee gained 0.22 percent Monday to close at 75.91 a dollar. While the local unit is one of the worst-performing Asian currencies this calendar year, it is the best performing since last Friday, Bloomberg data showed.

While equity sale is likely to accelerate amid new dislocations due to the Omicron virus spread, the currency is expected to turn volatile.

The central bank has been persistently selling since last week when a resurgence of a new coronavirus variant spooked investors globally reviving poignant memories of lockdowns that had a high economic cost.

Last Thursday the Bank of England decided to raise rates by 15 basis points even as the Omicron variant engulfs the whole United Kingdom, threatening the economy. Omicron so far has hit the UK the most.

“Markets are now moving based on virus-on virus-off mode triggering uncertainty across the world,” said Kunal Sodhani, AVP, Global Trading Center, Shinhan Bank India. “The rupee cannot remain immune to it. The central bank may primarily aim to curtail excess volatility using its abundant forex reserves.”

“Due to the rise in volumes, exporters and carry traders may stand on the other side as well,” he said.

With wild swings, some dealers are apprehensive of the rupee likely touching a new record low. However, a suspected central bank intervention diminishes such possibility of bringing relief for importers.

“We are suggesting our exporter clients hedge their position at the current level,” said Anil Bhansali, founder at Finrex, a Mumbai-based advisory firm. “Importers can wait for the market to stabilise.”

Foreign portfolio investors have sold a net of $2.45 billion in December versus $329 million a month earlier, show data from NSDL, a depository.

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