Rupee hits one-month high on RBI's dollar sales, softer dollar index

The rupee surged to 87.83 per dollar on Thursday, its strongest level in a month, buoyed by heavy dollar sales by the Reserve Bank of India and improved global risk sentiment

The rupee extended its gains on Thursday to settle at around one-month high at 87.83 per dollar due to decline in dollar index, and improved investor sentiment after heavy dollar sales by the Reserve Bank of India (RBI).

 

The local currency had settled at 88.07 per dollar on Wednesday after witnessing the sharpest single-day rise in almost four months. Dealers said the RBI may have sold $4 billion in both onshore and offshore markets in the last two sessions, which lifted sentiment. The Indian unit came under pressure in recent months following high tariffs imposed by the US.

 

“The rupee strengthened mainly because of RBI’s strong intervention in both onshore and offshore markets, along with improving foreign inflows,” said the treasury head at a private bank. “Besides RBI’s intervention, sentiment around the rupee has improved as the currency had already depreciated sharply in the past few months, creating room for a rebound,” he added.

 

The rupee was the best-performing Asian currency, with 1.11 per cent appreciation seen in the last two trading sessions. South Korean Won was the second best-performing Asian currency, with 0.8 per cent appreciation.

 

The dollar index was down 0.20 per cent at 98.59. It measures the strength of the greenback against a basket of six major currencies.

 

“The RBI could have sold around $4 billion in total, which led to the shift in sentiment,” said a market participant. “The rally continued on Thursday also because the market is thinking the trade negotiations are a done deal,” the person added.

 

The central bank’s aggressive dollar sales through state-run banks on Wednesday triggered a wave of short-covering, quickly reversing the bearish sentiment that had built up in recent days. The rupee has depreciated by 2.52 per cent in the current calendar year, whereas it has witnessed 2.68 per cent depreciation in the current financial year so far.

 

RBI Governor Sanjay Malhotra said on Wednesday that the central bank does not target any specific level for the rupee, and the currency value is guided by market forces, and macroeconomic fundamentals. While speaking at the International Monetary Fund’s (IMF’s) Governor Talks session in Washington D.C., Malhotra said the RBI’s role is limited to ensuring orderly movements, and preventing volatility rather than defending any particular price band.

 

The RBI has the ammunition to protect any undue volatility in the foreign exchange market with almost $700 billion of foreign exchange reserves — India is among the top five countries globally.

 

Since the cumulative 50 per cent tariff by the US on Indian goods kicked in from August 27, September saw the full impact of the duty.

 

India’s trade deficit widened to a 13-month high in September, driven by a sharp rise in bullion imports, even as merchandise exports grew 6.7 per cent year-on-year (Y-o-Y) to $36.38 billion, data released by the commerce department on Wednesday showed.