RBI steps in to stem rupee fall, defends 77.50 per dollar level

A day after the rupee hit an all-time low and breached the 77 per dollar mark, the Reserve Bank of India (RBI) on Tuesday intervened heavily across foreign exchange markets — spot, futures, and off-shore — which stopped the rupee from going past the 77.50 per dollar level, currency dealers said.

The Indian currency opened at 77.29 per dollar after closing at 77.46 on Monday. State-run banks sold dollars heavily, on behalf of the central bank, at 77.42 levels, the dealers said. The rupee ended the day 77.33 per dollar, up 14 paise from the previous close, after touching the day’s low of 77.45.

“The RBI protected the rupee, preventing it from hitting 77.50 levels. We have seen dollar selling in those levels,” said Amit Pabari, managing director, CR Forex.

In a Business Standard poll on Monday, most participants expected the rupee to breach the 78 per dollar mark by the end of this month, while some projected the rupee to breach 79 per dollar levels by the end of the quarter.

“There was not much support for the rupee as exporters were not selling while the dollar was strengthening,” said Anil Bhansali, head of treasury, Finrex Treasury Advisors.

Bhansali said the central bank might have sold $500-$700 million on Tuesday in the spot market. Dealers said the central bank was seen intervening across foreign exchange markets — spot, futures and the NDF (non-deliverable forward) markets — showing its intention to defend the Indian unit amid global uncertainties, which has led investors to rush for safe haven assets.

“The dollar traded higher as investors shed riskier assets on worries about higher interest rates and their impact on economic growth, while the dollar held near 20-year highs,” IFA Global said in a note. 

“The dollar's relentless advance is roiling Asian currencies and pushing policymakers into action to curb losses,” they added.

The central bank's resolve to defend the currency will be tested amid a sharp fall in foreign exchange reserves in the last few months. Foreign exchange reserves declined by around $45 billion from its all-time high of $642 billion – reached for the week ended September 3, 2021.

Sources said the RBI aims to maintain foreign exchange reserves of $600 billion in such uncertain times. The latest data from the RBI showed that the country’s foreign exchange reserves were at $598 billion for the week ended April 29, apart from a forward book of around $60-70 billion.