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On a day of panic in the currency and bond markets, the brass of the Reserve Bank of India (RBI) swung into action to soothen frayed nerves and send out signal that trading actions were under "close watch".
Treasury executives said RBI conducts such top-level engagement with treasury heads only during very uncertain and rough times. The idea is to take feedback on the ground situation and get a sense of the implications.
One of the deputy governors of RBI is believed to have spoken to select banks to get a feel of the market mood and send a message that RBI was watching.
When contacted, two public sector executives conceded such an interaction took place but declined to elaborate further, saying the matter was confidential.
The treasury executive with a public sector bank commented: "This happens but it is not common."
He said such a high-level interaction had happened after Standard and Poor's downgraded the rating of the US federal government from AAA (outstanding) to AA+ (excellent) on August 5, 2011.
RBI's monitoring has been high for the past few days.
The central bank has a dealing room through which it gets information about market trends and deals. It acts as a listening post on a normal day. This is in addition to information feed from news wires and terminals, said the treasury head of a private bank.
According to dealers, RBI was watching the happenings in the foreign exchange market closely. However, the banking regulator's concern was not just rupee crash. The activity in bond markets, practically shut for about an hour in the morning, was also under RBI's radar.
The dealing rooms saw thick action and panic in early hours, bank executives said.
The scale of intervention by the central bank in the forex market has been small. But it always has a communication channel open to send across message and discipline those whom it suspects of taking highly risky positions, which could be harmful to the market.
The central bank has to walk a tightrope. With a limited amount of foreign exchange reserves, RBI has to be careful about the extent to which it can dip into the kitty for intervention.
Reserves are not a war chest to defend the rupee; they are for matters such as import payments, said a senior executive with a small private bank.
