Dollar Sale by RBI Helps Rupee Rebound from 18-month Lows

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

The rupee rebounded from about 18-month low last week after the central bank sold dollars in spot and futures markets.

The local unit on Monday extended its three-day gaining streak.

The RBI 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, 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 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’s dollar selling.”

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

The rupee gained 0.22% on Monday to close at 75.91 a dollar. White 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 the selloff in equity market is likely to accelerate due to Omicron’s spread, the currency is expected to turn volatile.

The RBI has been persistently selling dollars since last week when resurgence of the new coronavirus variant spooked investors globally. Last Thursday the Bank of England decided to raise rates by 15 basis points.

“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.

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

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