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Traders say the Indian central bank is likely selling dollars to support the rupee. The rupee was quoted at 85.77 to the U.S. dollar after dipping to an intraday low of 85.7950 in afternoon trade. The rupee hit a record low of 85.8075 last week.
Central Bank Intervention
State-run banks offered dollars, most likely on behalf of the Reserve Bank of India (RBI). This happened around 85.77-85.79 levels, according to traders. A private bank trader mentioned that without RBI’s intervention, the rupee could have drifted lower towards 86.
Factors Influencing the Rupee
In recent weeks, the Indian rupee faced significant pressure. The central bank’s intervention aims to stabilize the currency and prevent further depreciation. Rising global oil prices, which increase India’s import bill and widen the current account deficit, contribute to the rupee’s decline. Additionally, the U.S. Federal Reserve’s monetary policy tightening strengthens the dollar, affecting emerging market currencies like the rupee.
RBI’s Strategy
The RBI uses its foreign exchange reserves to buy rupees and sell dollars. This action increases demand for the rupee and supplies more dollars into the market, supporting the rupee’s value. The RBI’s involvement shows its commitment to maintaining currency stability and managing inflationary pressures.
Market Participants’ Views
Market participants closely monitor the central bank’s actions and the overall economic environment. While the RBI’s intervention provides temporary relief, sustained measures and broader economic policies are needed for long-term stability. Analysts emphasize addressing structural issues and promoting economic growth to enhance the rupee’s resilience.
