Rupee's relentless slide fuelling talk of RBI intervention, say bankers

Dominance of flows has dulled the rupee's sensitivity to daily swings in its Asian peers, allowing the downside momentum to build and raising expectations of depreciation and speculative activity

The Indian rupee's near one-way slide over the past month, with the currency repeatedly touching all-time lows regardless of broader Asian market cues, is fuelling talk among bankers of heavier pushback from the central bank.

The rupee has fallen about 2.5 per cent over the past month, driven by a persistent imbalance in dollar flows, with the lack of a US-India trade deal weighing on sentiment. Importer hedging has intensified and foreign investors have remained cautious on Indian equities, keeping the currency under constant strain.

The dominance of flows has dulled the rupee's sensitivity to daily swings in its Asian peers, allowing the downside momentum to build and raising expectations of further depreciation and speculative activity.

In previous bouts of rupee weakness this year, when the currency weakened persistently irrespective of Asian cues and signs of speculative positioning building, the Reserve Bank of India stepped in with heavier-than-usual intervention to curb the slide.

For instance, the RBI intervened forcefully in both the spot and non-deliverable forward markets on two occasions last month to put the brakes on the rupee's slide. It had intervened in a similar way in October and earlier in February.

"Those were not routine interventions - the RBI came in with size to break the move and bring two-way trade back," a banker said.

"With how one-way the rupee has been, it's reasonable to think the RBI could be back the same way."

A trader at a state-run bank echoed the view, saying that with market consensus building around further depreciation, the probability of heavier intervention has increased.

The Indian currency declined past the 91 handle against the US dollar for the first time on Tuesday, down 0.3 per cent on the day.

The rupee's weakness has stood out, with most Asian currencies advancing over the past month. The Thai baht has climbed over 3 per cent, while the yuan, ringgit and Singapore dollar have all appreciated by at least 1 per cent.

The contrast in performance has left the rupee notably weaker against its peers, with the currency sliding to all-time lows against its peers.