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RBI Intervenes to Support Indian Rupee
Confirmed
In Short: The Reserve Bank of India (RBI) intervened in the currency market, leading to a mild recovery in the Indian Rupee (INR) against the US Dollar (USD) on Thursday.
The Reserve Bank of India (RBI) intervened in the currency market, leading to a mild recovery in the Indian Rupee (INR) against the US Dollar (USD) on Thursday.
Economists at ING reported that the RBI’s Monetary Policy Committee (MPC) unanimously voted to raise the policy repo rate by 25 basis points to 5.50%, marking its first rate hike in four years.
The Indian Rupee opened mildly higher on Thursday, with the USD/INR pair trading at 96.7505, close to Wednesday’s high of 96.85 and within striking distance of its all-time high at around 97.00.
The RBI’s intervention was highly anticipated by financial markets, as the Indian currency fell sharply against the US Dollar on Wednesday following the RBI’s monetary policy announcement.
The RBI reportedly intervened with between $1.5 billion and $3 billion, active in both the domestic spot market and the offshore non-deliverable forward (NDF) market.
The intervention pushed down forward premiums, with the one-year implied interest rate falling about 10 basis points to 2.82%.
The RBI’s strategy involved selling dollars in the spot market and conducting buy-sell swap operations in the forward market, designed to support the rupee without tightening domestic liquidity.
The RBI’s proactive approach in limiting excessive currency volatility suggests a preference for using foreign exchange reserves and market operations over interest rate increases to support the currency.
The RBI’s intervention amplified the move, accelerating after the dollar-rupee pair broke below a key technical support zone around 96.14-96.16, prompting investors to unwind long-dollar positions and triggering automated stop-loss orders that intensified the rally within minutes.
What's confirmed
- The Reserve Bank of India (RBI) intervened in the currency market, leading to a mild recovery in the Indian Rupee (INR) against the US Dollar (USD) on Thursday.
- Economists at ING reported that the RBI’s Monetary Policy Committee (MPC) unanimously voted to raise the policy repo rate by 25 basis points to 5.50%, marking its first rate hike in four years.
- The Indian Rupee opened mildly higher on Thursday, with the USD/INR pair trading at 96.7505, close to Wednesday’s high of 96.85 and within striking distance of its all-time high at around 97.00.
- The RBI’s intervention was highly anticipated by financial markets, as the Indian currency fell sharply against the US Dollar on Wednesday following the RBI’s monetary policy announcement.
- The RBI reportedly intervened with between $1.5 billion and $3 billion, active in both the domestic spot market and the offshore non-deliverable forward (NDF) market.
- The intervention pushed down forward premiums, with the one-year implied interest rate falling about 10 basis points to 2.82%.
- The RBI’s strategy involved selling dollars in the spot market and conducting buy-sell swap operations in the forward market, designed to support the rupee without tightening domestic liquidity.
- The RBI’s proactive approach in limiting excessive currency volatility suggests a preference for using foreign exchange reserves and market operations over interest rate increases to support the currency.
- The RBI’s intervention amplified the move, accelerating after the dollar-rupee pair broke below a key technical support zone around 96.14-96.16, prompting investors to unwind long-dollar positions and triggering automated stop-loss orders that intensified the rally within minutes.
What's still developing
- ) The Indian Rupee (INR) is one of the most sensitive currencies to external factors.
- In the daily chart, USD/INR trades at 96.7505, holding a bullish near-term bias as spot remains above the 20-day exponential moving average (EMA) at 96.0669.
- The pair has extended its recovery from late-August lows, and the elevated Relative Strength Index (RSI) at 72.6 hints at overbought conditions, suggesting upside momentum may be stretched even as the broader structure stays supportive.
- A weaker rupee raises the cost of imports, particularly crude oil, and can fuel inflation in one of the world’s largest energy-importing economies.
- Bankers said the RBI likely employed a similar strategy on Friday when the rupee was approaching a record low, suggesting policymakers have become increasingly proactive in limiting excessive currency volatility rather than defending a specific exchange-rate level.
- The Indian rupee strengthened to a two-week high on Monday after a combination of Reserve Bank of India (RBI) intervention, lower crude oil prices and a wave of stop-loss dollar selling triggered its sharpest rally in weeks, offering temporary relief to a currency that has come under sustained pressure this year.