RBI intervention keeps rupee from hitting 84 against the US dollar

The rupee was weighed by outflows from the domestic equities, rise in crude oil prices, and the surge in dollar index, said dealers

The rupee hovered near its all-time closing low on Monday, settling flat against the dollar as the Reserve Bank of India (RBI) intervened in the foreign exchange market through dollar sales, dealers said. The domestic currency closed at 83.97 per dollar, unchanged from the previous Friday’s close.

Several factors weighed on the rupee, including outflows from domestic equities, rising crude oil prices, and a strengthening dollar index.

Market participants said that the RBI likely intervened via non-deliverable forwards (NDF), local spot, and currency futures markets to prevent the rupee from breaching the 84 mark against the greenback.

The rupee has been trading near record low levels for the past three sessions. However, traders remain optimistic that it will not breach the psychological 84 per dollar mark because of timely RBI interventions. “The RBI was present in the market today to protect against the 84 per dollar mark,” said V R C Reddy, head of treasury at Karur Vysya Bank. “The dollar is strengthening because of (market) jitters and global uncertainty.”

Last week, the rupee depreciated by 0.3 per cent versus the American currency. Year-to-date, it has fallen by 0.9 per cent, while it has decreased by 0.7 per cent in the current financial year.

In other developments, dollar-rupee forward premiums dropped by 11 basis points to 2.27 per cent following the rise in US Treasury yields in response to expectations of a 50 basis point rate hike being dampened by robust US jobs data. In September, the US economy added 254,000 jobs, exceeding the forecast of 140,000 and surpassing August's revised figure of 159,000. Additionally, the unemployment rate fell to 4.1 per cent.

“With foreign portfolio investors buying dollars to cover equity sales and reallocating funds to Chinese stocks, which are relatively cheaper than Indian stocks, Indian premiums have also declined,” noted Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP. He added that the interest rate differential between India and the US has narrowed by about 16 basis points due to the stronger non-farm payroll figures, resulting in rising US 10-year yields.

India’s foreign exchange reserves surged to surpass the $700 billion mark in the week ended September 27, bolstered by an increase in foreign currency assets. Total reserves rose by $12.58 billion to $704.88 billion, marking the fifth-highest weekly increase in foreign reserves. Foreign currency assets increased by $10.46 billion during this period due to revaluation gains and the RBI's spot market dollar purchases.