RBI will intervene to mitigate the impact and reduce jerky movements in rupee
The Reserve Bank of India has intervened in the open market in recent days to prevent losses in the rupee and is likely to continue to do so, although the intervention would be to limit the currency cap.
On concerns of currency depreciation for India, sources told NDTV that the RBI will participate in the market “to mitigate the impact” and “to mitigate jerky movements in the rupee”.
While the rupee has risen to 77.25 per dollar from a new all-time low of 77.50 hit on Monday, it is still above the previous weak record low of around 77 in March.
Traders said the RBI may have intervened – after the rupee fell to 77.44 on Monday – through selling of dollars by state-run banks in the open market.
People familiar with the matter said the latest exchange rate movement is part of a broader trend.
Indeed, the selloff in riskier assets, including the rupee, has been driven by traders looking at safe investment opportunities on rising inflation, high interest rates and slowing economic growth concerns.
In addition, tighter lockdowns in China, Europe’s plan to impose sanctions on Russian oil in response to its war against Ukraine, in its third month, and rising commodity prices protected the US dollar from slowing economic growth risks. -Heaven appeal is boosted.
The US Federal Reserve is set to aggressively hike interest rates, pushing the dollar to a two-decade high.
Capital outflows from emerging markets are the result of aggressive US monetary policy. Investors take refuge in US assets during the rate hike cycle in anticipation of a resultant slowdown in economic activity.
Like other emerging market countries, India has seen sharp outflows from its capital markets, which have hurt the rupee and the country’s foreign exchange reserves in recent weeks.
India’s forex reserves fell below $600 billion for the first time in a year, falling for eight consecutive weeks, the weakness of the rupee driven by frequent capital outflows and the broader dollar bounce in recent months.
Foreign exchange reserves have fallen for eight consecutive weeks since Russia’s invasion of Ukraine on February 24, wiping out nearly $34 billion, or about 5.4 percent.
The sources’ comments on RBI’s intervention to curb jerky movements in the rupee reflect a Bloomberg report in which analysts expect the central bank to take a more limited defense aimed at preventing losses in the rupee. only from the worst speculative attacks Instead of fighting the global trend.
“The RBI will be careful to fight mounted speculators, not the Fed. Suffice to say, Vivek warns against trying to defy broad-based dollar trends. Ultimately, that compares to creating a reserve coffer of over $600 billion. It’s hard in the burn,” Bloomberg quoted Vishnu Varthan, head of economics and strategy at Mizuho Bank, in that report.
In fact, the country took more than a year to build its foreign exchange reserves to over $630 billion and in just two months, or since Russia invaded Ukraine in late February, India’s imports covered the war chest. A decline of about $34 billion, or about 5.4 billion. Percent.