Rupee posts best day in a month; RBI dollar sales boost recovery

After breaching 92 per dollar, the rupee rebounded sharply on RBI's heavy dollar sales, becoming the best-performing Asian currency even as geopolitical risks kept markets cautious

A day after hitting a fresh low and breaching the 92 mark against the dollar, the rupee on Thursday gained 0.6 per cent to become the best-performing Asian currency, supported by dollar sales by the central bank. 

Dealers estimated that the Reserve Bank of India (RBI) sold around $5-6 billion during the day. 

The domestic currency had fallen to a fresh low of 92.30 per dollar during Wednesday’s session, weighed down by escalating geopolitical tensions in West Asia. 

On Thursday, the rupee settled at 91.61 per dollar, compared with the previous close of 92.15 per dollar. It was also one of only two Asian currencies that appreciated against the greenback during the session.

 

 

“The currency traded within an intraday range of 91.40-91.64 per dollar following intervention by the RBI, which reportedly sold dollars through state-run banks to stabilise the currency,” said Abhishek Goenka, founder and CEO of IFA Global.

 

“The earlier pressure was largely driven by a surge in crude oil prices and a broader global riskoff sentiment, which strengthened the US dollar and weighed on oil-import-dependent currencies like the rupee. Market participants remained defensive, with importer demand for dollars persisting through the session,” he added.

 

The rupee has depreciated by 6.70 per cent against the dollar so far in the current financial year, while it has weakened by 1.89 per cent in the current calendar year.

 

“Today, the RBI did not allow 91.65 to be cleared on the downside for the rupee,” said Anil Kumar Bhansali, executive director and head of treasury at Finrex Treasury Advisors.

 

“There were sufficient dollar buyers who kept the rupee on the upside near the 91.63 levels, but the RBI was firm in its stance and did not allow any upward move,” he said.

 

The central bank also intervened in the government bond market via bond purchases for the second consecutive trading session, dealers said.

 

The yield on the benchmark 10-year government bond settled at 6.64 per cent, compared with the previous close of 6.67 per cent.

 

“The RBI continued its bond purchases and mutual funds were on the selling side,” said a dealer at a primary dealership. “Yesterday (Wednesday), they bought around ₹20,000 crore worth of bonds. Today (Thursday), it could be more than that,” the dealer added.

 

The central bank had bought ₹2,815 crore worth of government bonds in the secondary market on February 18, latest data showed. In the week ended January 23, the RBI had bought ₹12,655 crore worth of bonds in the secondary market.

 

Foreign exchange market participants said sentiment improved marginally later in the session after reports suggested that Iran had signalled a conditional willingness to abandon its nuclear programme if the United States presented an acceptable alternative proposal.

 

In the near term, the rupee is likely to remain sensitive to movements in crude oil prices and developments on the geopolitical front.