MUMBAI: The Indian rupee slipped against the dollar on 20 February, with traders wary of building up holdings in the currency given suspected Reserve Bank of India (RBI) efforts to block its attempts to strengthen beyond 44 per dollar.
At 10 a.m. (0430 GMT), the partially convertible rupee was at 44.150/160 per dollar, slipping from 19 February’s close of 44.135/140.
Many traders believe the RBI has actively stopped the rupee from strengthening to 16-month highs past 44.
“It’s likely to be a lacklustre day with the RBI’s presence hanging over, the market is not comfortable doing large transactions,” said a dealer at a foreign bank, referring to the RBI.
“I expect the rupee to trade in a 44.12-17 range today,” he added.
Data shows that the RBI bought about $5 billion in November and December, and the market widely believes the central bank has intervened consistently this year to check the rupee’s gains and keep Indian exports competitive.
J.P. Morgan estimates the RBI bought about $3.5 billion in the first half of February to weaken the Indian unit.
India’s foreign exchange reserves rose by about $5 billion on 9 February from a week earlier, and analysts believe this was largely because of central bank intervention.
Robust foreign investment into India has helped boost the rupee by about 6.5 % from a three-year low last July, and the market thinks the RBI is uneasy with the rupee’s pace of appreciation.
Traders are also waiting on a Bank of Japan policy meeting that ends on 21 February, with players divided over whether it will lift rates to a decade-high of 0.5 % from 0.25 %.