Rupee gives up early gains, drops 6 paise to close at 86.89 against dollar

Bids in VRR auction fall short of notified amount of Rs 2.5 trillion

The rupee reversed its early gains to settle 6 paise weaker at 86.89 per dollar against the previous close of 86.83. The local currency appreciated up to 86.45 per dollar during the day. The early gains were largely driven by short covering, but renewed weakness quickly erased momentum, capping further appreciation, said dealers. 

  The rupee appreciated in the last three trading sessions. On Monday, the Indian unit went close to touch 88/$ but intervention by the RBI pulled it back. On Tuesday, the rupee recorded its biggest gain – 0.74 per cent – in nearly two years. “Rupee traded highly volatile as an initial strong opening was met with selling pressure, pushing it back towards trading flat,” said Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities. 

 

  Meanwhile, the RBI received bids worth Rs 1.93 trillion in the Variable Rate Repo (VRR) auction conducted on Wednesday, falling short of the notified amount of Rs 2.5 trillion. According to the latest RBI data, the liquidity deficit in the banking system stood at Rs 1.9 trillion as of Tuesday, reflecting continued tightness in liquidity conditions.  

Given the prevailing liquidity tightness in the banking system, market participants expect that the RBI may conduct additional OMO to address the liquidity crunch and stabilise short-term rates. “While no fresh measures on liquidity were announced at last week’s rate review, this week’s action reinforces that the RBI will tweak its response mechanism in tune with evolving conditions, especially in a bid to sterilise intervention moves,” said Radhika Rao, Executive Director and Senior Economist, DBS Bank.

 

“Since a host of measures were announced on 28 January, an estimated Rs 1 trillion has been infused through OMOs and FX swaps, along with Rs 500 billion via a 56-day repo auction, for which banks had bid twice the notified amount. More such measures are likely in the pipeline, including longer-tenor FX swaps and open market operations heading towards the end of the financial year and early FY26,” Rao said.

 

The RBI will conduct a 49-day VRR auction on Friday to infuse Rs 75,000 crore in the banking system. Under the daily VRR auction, the notified amount for Thursday would be Rs 2.75 trillion. At the first such auction, the notified amount was Rs 50,000 crore.