The Reserve Bank of India (RBI) intervened in the foreign exchange market with dollar sales, preventing the Indian rupee from plummeting to a record low on Wednesday, according to dealers.
The rupee closed at Rs. 83.24 per US dollar, marginally down from Rs. 83.21 a dollar on Tuesday. During intraday trading, it slipped to Rs. 83.27, closely approaching its all-time low of Rs.83.29.
Amit Pabari, Managing Director at CR Forex, commented, “RBI has been managing the rupee’s volatility. They might have executed a Sell Buy Swap to arrest the depreciation without affecting rupee liquidity.”
Dealers estimate that state-run banks sold approximately $500 million on behalf of the RBI. The central bank consistently states that its foreign exchange market interventions are aimed at controlling volatility, without targeting a specific currency level.
Although US Treasury yields soared to a 16-year high on Wednesday, the rupee outperformed most of its Asian counterparts. It was ranked fifth among the best-performing Asian currencies against the dollar.
Hitesh Jain, Strategist at Institutional Equities Research – Yes Securities India Ltd, remarked, “The rupee remains resilient against the rising US dollar. With positive macros and a promising growth outlook, India’s economic prospects are optimistic.”
Market insiders predict the rupee will oscillate between Rs. 83.05 and Rs. 83.30 per dollar. Concurrently, a strong domestic economic outlook has insulated the Indian bond market from global turbulence. Despite the escalating US Treasury yields, Indian traders are more attuned to local indicators.
Caution prevails among traders in anticipation of the Monetary Policy Committee’s policy decision this Friday. The consensus is that the repo rate will likely remain unchanged until the second quarter of the upcoming financial year.
The yield on the 10-year domestic government bond remained unchanged at 7.24 per cent from Tuesday. A dealer at a state-owned bank observed, “The US yields are escalating mainly due to supply pressures. While 90 per cent of the selling in the US market stems from these pressures and only 10 per cent from their macros, India’s macros remain strong.”
The 10-year US Treasury yield climbed to 4.88 per cent on Wednesday, driven by the anticipation that the US Federal Reserve might maintain higher rates longer as supply pressures intensify. There’s an expectation of a 25 basis point rate hike by the US Federal Reserve in 2023.