RBI steps in to keep rupee from crossing key 80 mark
PremiumThe rupee opened at 79.93 against the dollar on Friday, hitting an intraday low of 79.96, before recovering to close at 79.88.
The Reserve Bank of India’s intervention likely saved the rupee from breaching the psychologically critical mark of 80 to a dollar in the spot market after the currency breached the barrier in the offshore and over-the-counter markets after market hours on Thursday, currency traders said.
The central bank likely sold more than $1 billion in the spot market on Friday to support the rupee, the traders said on the condition of anonymity.
The rupee opened at 79.93 against the dollar on Friday, hitting an intraday low of 79.96, before recovering to close at 79.88.
“Eighty is a psychological level. It will not be easy to break this level easily. Oil prices are stabilizing, and structurally India is becoming better off than a couple of days ago. There could have been supply from RBI side as well to smoothen volatility," said Bhaskar Panda, senior vice-president, treasury advisory group, HDFC Bank Ltd.
Besides the central bank intervention, commentary from two US Fed governors that they preferred a 75 basis points rate hike in this month’s Federal Open Market Committee meeting calmed the nerves of traders, who were factoring in at least a percentage point rate hike after the US reported its worst inflation reading in more than four decades for June.
While traders were less jittery after the comments of Fed governor Christopher Waller and St. Louis Fed president James Bullard, a Reuters report showed investors are still factoring in a 45% chance of a full percentage-point rate hike.
Market participants will also follow US President Joe Biden’s visit to Saudi Arabia closely. Many expect him to push Saudi and Opec to pump more oil to reduce global crude prices, which have been stoking inflation worldwide.
Oil prices settling below $100 per barrel will provide some respite to rupee.
Meanwhile, continued selling by foreign portfolio investors (FPIs) is putting pressure on the rupee. They sold ₹2.25 trillion worth of equities this year till 13 July. “India’s depreciating rupee, widening trade deficit, selling pressure from FPIs and volatility in global crude prices are augmenting the economic and financial impediments. RBI is attempting to diversify sources of forex funding, mitigate volatility in the forex market and contain global spill-overs to prevent the devaluation of the rupee. We expect a strong economic rebound, normalized commodity prices, inflation within the targeted range in 2HFY23," said Mitul Shah, head of research at Reliance Securities.
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