The Reserve Bank of India (RBI) on Monday sold dollars through public sector banks (PSBs) heavily in the currency market, which helped the Indian currency cut back losses it incurred in early trade.
The rupee opened weaker, at 75.72 per dollar, compared to the previous closing of 75.29 that prompted the central bank to intervene during the early trading hours. The Indian currency closed the day at 75.34 a dollar, down 0.06 per cent from its previous close. Sentiments in the equity market, which bounced back after a weak opening, also helped the domestic unit. “Select PSBs sold dollars aggressively on behalf of RBI in both the spot and forward market. There was intervention at 75.60-65/$ levels. This helped the rupee cut the losses,” said Amit Pabari, managing director, CR Forex.
The rupee weakened 0.95 per cent against the dollar in February. The Indian currency, one of the worst performing Asian currencies in 2022, lost 1.33 per cent during this period.
Another reason for the central bank’s intervention was to ensure it does not depreciate too much against the Chinese currency, dealers said. “PSUs were seen on offer around open itself to smoothen volatility in USD/INR. CNH/INR at 12 seems to be the line in the sand as of now,” said Abhishek Goenka, founder and chief executive officer, India Forex Advisor.
Inflation is also a concern for the central bank with headline CPI Inflation crossing above its upper tolerance band of 6 per cent in January. “A stronger Yuan pushes up core inflation. Higher crude prices and a stronger Yuan both at the same time can be extremely inflationary. Rupee continued to strengthen throughout the session as domestic equities recovered, initial long Dollar positions got stopped and on general month end exporter selling,” Goenka said.
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