The Reserve Bank of India (RBI) appears to have stepped out of the way of a rising rupee, after buying almost $20 billion (Rs84,000 crore) in four months trying to cap it, and is instead using the currency’s strength to help fight inflation.
Analysts say the rupee may have run out of steam after hitting a nine-year high of 41.62 per dollar this week. When inflation is high—it hit a two-year peak of 6.7% in early 2007—intervention makes it even harder for the central bank to contain price pressures, and analysts think this may have prompted the shift in stance.
The rupee has risen around 6% this year, with most of the gains coming in the past five weeks as RBI has become less active. It bought $19.7 billion in the four months starting November, including $11.9 billion in February, trying to block the rupee’s rise, latest data shows.