Despite the rupee breaching 81.94 to hit new lifetime lows on Wednesday at 15:00 (+5:30 GMT). The Reserve Bank of India (RBI) sold fewer spot dollars than it did the previous week, highlighting the decreasing utility of aggressive interventions in the face of the US currency’s unprecedented global surge that hasn’t spared even the pound and the euro.
The Reserve Bank used a variety of platforms, including the spot, futures, and foreign derivative markets, to reduce the pace of depreciation in the local unit as two-year US treasury yields increased past 4.1% and triggered algorithmic trades that destroyed 11 lakh crore of investor wealth in two days, according to dealers.
However, its policy to protect the rupee today seems to be based on more tactful interventions, disconnected from vehemently defending any particular currency rate that was once thought to be sacred.
The RBI is unlikely to use significant reserves to defend any level; intervention will only be there to reduce volatility, according to Ashish Vaidya, managing director of DBS Bank. Allowing market forces to operate within normal bounds is always preferable.
RBI Sells Dollars
Dealers reported that the RBI did sell dollars in the spot market on Monday. But that the amount was apparently cut in half from more than $2 billion on Friday to just $1 billion. When the rupee breached 81.60 to the dollar on Monday, Central bank activity in the spot market became more obvious.
The rupee dropped to a fresh record low of 81.94 before cutting its losses and finishing at 81.92, the lowest value ever recorded for the currency.
ET’s letters to the RBI went unanswered. The dollar index, which compares the currency to all other significant ones, is at its highest point for the millennium. The gauge continued to rise and broke through 114. Indicating relative dollar strength against other currencies is a high reading above 100.
The ongoing strong risk-off mood has had a knock-on effect on all major global currencies. According to Parul Mittal, head of financial markets at Standard Chartered Bank India. “The RBI is said to have intervened in the market using a variety of methods because pressure was also felt in the foreign exchange markets. The movement of the rupee on Wednesday was not unusual.
The rupee had the third-worst performance among Asian currencies on Wednesday, losing 0.73%.