India’s central bank reenters to back the rupee, echoing February’s defense

Mumbai Currency Intervention

MUMBAI, Oct 15 – The Reserve Bank of India took significant action in the currency markets recently to support the rupee, according to traders. They mentioned that this initiative aligns with the central bank’s strategy to defend the local currency, similar to steps taken earlier this year in February.

Traders reported that the central bank began selling dollars through state-owned banks before the market opened at 9 a.m. This indicated a firm commitment to counter the rupee’s decline.

In a matter of moments, the market saw a surge in high offers, which resulted in a notable drop in the dollar-rupee exchange rate.

VRC Reddy, from Karur Vishya Bank, commented, “We saw activity in both the NDF and spot markets right after the opening. I believe this could shift sentiment regarding the rupee.” The rupee started at 88.26 against the dollar, significantly higher than the previous day’s rate of 88.7975 and close to a historic low of 88.80.

The momentum heightened when stop-loss orders for long dollar positions were triggered, further enhancing the impact of the RBI’s intervention, pushing the rate to a peak of 87.75 on the Interbank Order Matching System.

There weren’t any significant trends in the market overall. According to a currency sales representative from a foreign bank, the depreciation of the dollar against the rupee was primarily influenced by the RBI’s actions, with stop losses further intensifying the situation.

This representative added that the RBI seems intent on eliminating the speculative short interest accumulating against the rupee, noting that importers are beginning to enter the market as the rupee weakens.

Traders pointed out that the intensity and timing of Wednesday’s measures resembled the aggressive actions of February, when the central bank similarly moved to support the currency.

This intervention followed a period in which the RBI silently defended the 88.80 mark and occasionally sold dollars to prevent further depreciation of the rupee, according to traders.