The Reserve Bank of India was struggling to step into the Forex market this week, according to people familiar with central bank thinking, suppressing speculations for the rupee and hoping for a more handoff approach in currency from the new governor According to the traders that should.
After hitting a string of record lows in recent weeks, the rupee won nearly 1% against one dollar on Tuesday. The currency rose from 0.5% to 86.4238 in early trading on Wednesday.
The rupee rally comes just ahead of Prime Minister Narendra Modi’s meeting with US President Donald Trump this week. India is one of the countries most exposed to risks from Trump’s pledge. According to DBS Bank, the retreat of rupee from a record low will help ease currency-related tensions between India and the US.
Radikarao, a senior economist at DBS Bank, Singapore, said:
Market participants said the intervention in the previous two sessions was substantial. Although the RBI has not revealed the magnitude of the intervention, Anil Kumar Bhansali, director of the Treasury Department for Finrex Treasury Advisors, estimated that it could cost as much as $11 billion over two days. . RBI’s dollar revenue could exceed $10 billion, DBS said in a memo.
The RBI decided to intervene on Monday and Tuesday after finding an abnormal accumulation of speculative positions. Central banks are not hesitant to suddenly intervene to prevent accumulation of speculative bets.
Regulators have continued to closely monitor the open position in the currency market since the rupee has been under pressure for the past few weeks, people said. He said the central bank’s position against the rupee is not targeting a particular level of currency, but does not change in terms of intervention and smoothing out volatility.
RBI did not immediately respond to emails seeking comment.
New governor Sanjay Malhotra, who took office in December, had informed officials of their willingness to depreciate the currency along Asian peers to correct some of the overvaluations, Bloomberg said. The news was reported previously. The rupee has dropped by about 2% against the dollar since his appointment.
In a press conference following last week’s interest rate decision, Malhotra said central banks wanted “order and stability” in their currency and did not recognize the need to intervene daily.
One outcome of central bank intervention was the lack of rupee liquidity in the financial system. To counter that, the RBI has stepped up its liquidity injections, increasing its cash shortfall to around Rs 2 trillion ($23 billion) on Monday, compared to the surplus of around Rs 3 trillion in November.
The financial authorities injected Rs 1.94 trillion via variable repo auction on Wednesday. This comes after doubled this week’s bond purchase plan to Rs 400 crore.
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