The Reserve Bank of India’s (RBI’s) intervention to stem the rupee’s depreciation has narrowed the difference between the currency’s opening and closing significantly to 5-7 paise in the last week. Since December, the difference has been in the band of 10-20 paise.
Market participants said that the intervention, which has led to steady sales of $1-2 billion per day in the spot market, is a signal that the central bank is willing to defend the rupee. Before that, the rupee had fallen to almost 88 (87.956 on February 10) to a dollar. Forex traders said that the regulator has been active in both onshore and offshore markets. In addition, it has also been active in the non-deliverable forwards (NDF) market.
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The RBI’s net dollar short forward position, the amount of dollars that will be sold at a future date for a pre-set price, hit an all-time high of $68 billion in December. The increase in the forward book shows a shift in strategy to defend the rupee against dollar. “On Tuesday, the RBI has approximately sold around $2 billion in the spot market to ensure that the rupee did not breach the 87/$ mark again,” said a forex trader at a state-owned bank.
On February 11, the local currency rose nearly 1%, its biggest gain since November 2022, triggering stop-losses among rupee bears. The central bank intervened across spot and forward markets, traders said. This intervention has led to a sharp recovery in the rupee, with dollar/rupee retreating from nearly 88 to around 86.65 in the spot market.
Data suggests that the RBI’s forex reserves have declined sharply by over $75 billion since September 27, while the rupee depreciated from 83.70 to 87.96 against the dollar on February 10. Between April and November 2024, the central bank sold gross dollars of $195.6 billion, with the rupee remaining in the range of 84-86 against the dollar.
According to Bloomberg data, the local currency has depreciated by 3.60% since September, which is relatively lower than other major currencies such as the Japanese yen, Canadian dollar, British pound, Australian dollar and euro.
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Despite continuous effort from the RBI,
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