RBI intervenes again, lifting Indian rupee from near record low

The rupee gained sharply, pulling back from a near-record low after intervention by the Reserve Bank of India.

The currency rose as much as 0.4%, the most since Oct. 15, to 88.3925 per dollar, before paring gains. The central bank stepped in with dollar sales in the offshore currency market just before the onshore trading commenced at 9 am local time, according to people familiar with the matter.

The monetary authority has been selling small amounts of dollars in recent sessions. Although Tuesday’s action appeared stronger than last week’s interventions, it failed to generate the same impact seen in mid-October when the currency rallied by more than 1%. A weaker rupee risks stoking imported inflation and eroding returns for foreign investors.

Credit: Bloomberg

“There is clearly a wall of resistance around the 88.8050 level for the rupee with the central bank interventions,” said VRC Reddy, head of treasury at Karur Vysya Bank Ltd. in Mumbai. “Whenever the market tests it, the intervention is strong at that psychological level.”

Bonds also advanced after depository data showed that a category called others — which includes the central bank — bought 40.4 billion rupees ($456 million) of bonds on Monday, the most since Sept. 26. The 10-year yield fell two basis points to 6.52%.

The buying has provided hope that the central bank is also supporting the bond market, Reddy said.

Credit: Bloomberg

The rupee has weakened about 3.3% this year, contrasting with gains of more than 3% in most other emerging Asian peers. On Monday, it fell to 88.80, just shy of the record low of 88.8050 hit in September. Thanks to the intervention, the rupee was among the region’s top performer on Tuesday.

Persistent uncertainty over US tariffs on Indian exports and a stronger dollar, buoyed by waning expectations of Federal Reserve rate cuts, have weighed on emerging-market currencies.

Trade tensions linger after Minister Piyush Goyal said last month that India wouldn’t be rushed into concluding an agreement with the US. The US currently levies the highest duties on India among Asian nations, while improving US-China relations have reduced India’s relative advantage, according to Emkay Global Financial Services.

“The RBI does not want the 89 levels to breach until a trade deal has been agreed upon,” said Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors. “My feeling is that the central bank will let the market move more freely once the trade deal has been reached.”