RBI backstop keeps rupee stable, blunting importer dollar demand impact
The rupee opened at 94.89 against the U.S. dollar and briefly moved higher, before trading around the previous day’s close for most of the session. The currency ended at 94.97, after having settled at 94.95 on Tuesday.
The rupee remained stable against the U.S. dollar on Wednesday, supported by the Reserve Bank of India's (RBI) intervention, despite rising dollar demand from importers and a spike in oil prices. The currency opened at 94.89 against the dollar and briefly rose before trading around the previous day's close for most of the session. By the end of the session, the rupee settled at 94.97, a negligible change from the previous day's close of 94.95.
The RBI likely stepped in with dollar sales before the market opened and remained active to prevent any major currency volatility, according to traders. The central bank has been providing strong support to the rupee in recent sessions, bolstered by a substantial influx of deposits from non-residents. These deposits have helped shield the local currency from the impact of soaring oil prices and rising U.S. Treasury yields.
Krishna Bhimavarapu, an APAC economist at State Street Investment Management, noted that the Foreign Currency Non-Resident (FCNR) scheme has achieved its objective of supporting the external funding environment and stabilizing the rupee. The FCNR flows may have exceeded $100 billion, he added.
The recent tensions between the U.S. and Iran, which led to renewed military escalation, initially caused market turmoil, with benchmark Brent crude prices reaching a high of $97 per barrel. Traders anticipated that this news would negatively impact the rupee, but the RBI's intervention proved effective in preventing any significant decline in the currency.
Moreover, the surge in oil prices also fueled inflation concerns, prompting an increase in U.S. Treasury yields. The yield on the 10-year note reached its highest level in nearly three years. In the two days following the news, the RBI's dollar sales and inflows routed through foreign banks contributed to the currency's resilience, despite the dual challenges.
Alok Singh, head of treasury at CSB Bank in Mumbai, suggested that as long as Brent crude remains below $100 per barrel, the rupee will likely remain within the 94.50-95.50 range.
Written by urgent.news from Hindu BusinessLine's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
