Mumbai: The Reserve Bank of India sprang a surprise in the currency market as it tweaked its usual way to stem the rupee's sharp intra-day dip against the dollar on Friday.
The central bank sold about $200-250 million in the exchange traded futures market, four people familiar with the matter told ET. The RBI was relatively less active in the spot and forwards markets — where it usually intervened more to stem currency volatility — despite having a record high $400 billion in its foreign currency reserves. Analysts see this as the central bank’s strategy to protect its dollar war chest amid increasing currency volatility globally. The RBI didn’t respond to an email seeking comment.
The rupee on Friday slid to 65.16 to the dollar, a level not seen after May 4. The local unit, though, erased its losses later as some state-owned banks were seen selling dollar aggressively on behalf of the central bank, dealers said. It closed at 64.80, little changed from Thursday.
“The rupee is likely to be volatile with a depreciating bias in coming days amid domestic fiscal concerns,” said Gopikrishnan MS, head of foreign exchange, rates and credit for South Asia at Standard Chartered. 'Also, the dollar may gain strength with unwinding of US Fed balance sheet. We are advising our clients to hedge their exposures.”
Volatility would continue for the next few weeks as global in- (Inverted scale) vestors struggle to chart out a future path amid uncertainties, said KN Dey, managing partner at United Financial Consultant, a forex advisory firm. “The latest fall will encourage exporters, while prompting complacent importers to cover their short-term liability,” he said.
Two days ago, the US Fed said it would start cutting down the monetary largesse, known as quantitative easing in market parlance, amid renewed rate increase hopes. That means, global investors would exit emerging markets like India to invest in US securities, perceived as the safest in the world. Back home, foreign portfolio investors fretted over the prospect of the government loosening fiscal policy and slipping on its fiscal deficit, in its efforts to boost economic growth. The government’s expenditure over revenues is targeted at 3.2% of GDP for this fiscal year.
“The central bank looks protective about its forex reserves it built when the rupee was trending to rise,” said Anindya Banerjee, currency analyst at Kotak Securities. “A futures market intervention would not deplete its dollar stock as the rupee keeps whipsawing amid domestic and global uncertainties. “It is always better to have a strong cushion amid expectation of dollar outflows from the country,” he said. In the past two trading sessions, FPIs sold about .₹ 2,400 crore worth of equities. Debt investments, too, showed sign of stress as the benchmark yield remained elevated at 6.66%, eight basis points higher than the level two days ago.
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