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RBI intervenes to stop rupee’s fall to 88 to a dollar
The rupee was supported by the central bank’s strong intervention since the start of trade.
The rupee recovered from its all-time low on Monday after the Reserve Bank of India (RBI) likely intervened by selling dollars in the wake of US President Donald Trump’s announcement of fresh tariff plans.
The rupee weakened to 87.99 against the US dollar before closing lower at 87.4750.
According to traders, the rupee was supported by the central bank’s strong intervention since the start of trade.
Also read | Rupee settles flat at 87.50 against USD after inching close to 88-level in intra-day trade
The RBI is likely to have sold at 87.95, bringing the rupee down to 87.64.
“The NDF (non-deliverable forward) was showing opening at 88. Since I felt that RBI will surely intervene, I asked exporters to cover it at whatever level they got above 87.90. The intervention was very strong as the rupee rose to 87.41 before the fall to 87.60. RBI may have sold $1-2 billion to protect the rupee,” said Anil Kumar, head of treasury at Finrex Treasury Advisors. He added that the 88 level has been a strong resistance for some time.
According to Kumar, the real effective exchange rate (Reer) must have corrected to 105.50 in February.
The rupee’s real effective exchange rate was at an all-time high of 108.13 in November, suggesting overvaluation. Reer is the weighted average of a country’s currency in relation to an index or basket of other major currencies. An increase in a nation’s Reer indicates that its exports are becoming more expensive and its imports are becoming cheaper, reducing its trade competitiveness.
Asian currencies fall
Other Asian currencies, too, saw a fall on Monday. The Chinese yuan was down 0.2% at 7.31 to the US dollar. The dollar index at 108.41 gained after Trump said he would impose 25% tariffs on all steel and aluminium imports into the US. The US president also said that on Tuesday, he would apply reciprocal tariffs on all countries. The move has added to the jitters over the global trade war, with China’s reciprocal duties coming into effect today.
The rupee has emerged as the worst-performing Asian currency year-to-date (YTD) against a stronger dollar. The currency, which had been moving in the range of 84-85 for quite some time, logged its steepest single-day fall in nearly two years on 31 January when it hit a historic low of 86.70 against the dollar. Since 1 November, the rupee has depreciated by 2.6%.
Since September, the RBI has spent $77 billion from its foreign exchange reserves on intervention in the spot market, which has prevented the rupee from falling sharply. As of 31 January, India’s forex reserves stood at $630.6 billion.
Also read | Is the rupee on course for a bottomless fall?
Meanwhile, on Saturday, RBI governor Sanjay Malhotra reiterated that the central bank doesn’t target a particular “price level” for the rupee and said people shouldn’t worry about daily fluctuations in the Indian currency. Addressing the media after finance minister Nirmala Sitharaman met the RBI board for the post-Budget meeting, Malhotra said the focus should instead be on medium- to long-term changes in the rupee’s value.
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Business NewsEconomyRBI intervenes to stop rupee’s fall to 88 to a dollar
First Published:10 Feb 2025, 07:55 PM IST
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