There was a big fall in the rupee for 5 consecutive days. The value of one dollar crossed Rs 91. Which was the first time. Dollar pressure was continuously impoverishing the country. Finally, RBI listened to the sigh of the country on Wednesday and took such a step that the rupee witnessed the biggest rise in two months. The rupee closed at 90.38 US dollars, up 0.7 per cent from Tuesday’s closing price of 91.0275. In the last session it had fallen to a new life time low of 91.08. Traders say that the rise in the rupee started immediately after the opening of the spot market, when the Central Bank took strong steps to support the rupee. Let us also tell you why RBI has done this.
RBI intervened
On behalf of the Reserve Bank of India, public sector banks aggressively sold dollars, due to which the rupee recovered sharply during the day after crossing the level of 91. Jigar Trivedi, senior research analyst at Reliance Securities, said in an ET report that this step was taken with the aim of stopping the unilateral fall of the rupee, which had put the currency under extreme pressure. He said that this immediate action of RBI was taken with the aim of stopping the unilateral fall of the rupee.
The rupee appreciated by up to 1 per cent during the day, its biggest rise in seven months, after the RBI intervened in the local market by selling dollars. The move comes after the stock hit record lows in recent weeks, sparking debate over why the central bank did not intervene sooner.
Traders quoted by Bloomberg said the RBI may have intervened after it bought $5 billion through foreign currency swaps on Tuesday, giving it room to sell dollars in the spot market. The steps taken on Wednesday were reminiscent of similar incidents in October, when the RBI took decisive action to disrupt betting positions against the rupee.
Pressure on rupee continues
Before Wednesday’s rally, the rupee had fallen by nearly 2 per cent in December and emerged as Asia’s worst performing currency this year. The main reasons behind this decline are the delay in the US-India trade deal, profit-booking by foreign investors and increasing demand for dollars from domestic companies.
Data from Reuters Clearing House showed demand from importers remained high in November while demand from exporters fell, an imbalance that has put pressure on the currency for months. Foreign investors have pulled out about $18 billion from Indian equities this year, adding to the pressure on the rupee amid strong imports and uncertainty over the trade deal with Washington.
Trivedi said the recent losses were “due to profit-booking by foreign investors and continued demand for the dollar.” He further said that the rupee is expected to remain under pressure until progress is made in the US trade deal.
No need to worry now?
The sharp fall of the rupee had unsettled the markets, especially when it crossed the psychologically important level of 91. Trustline Holdings CEO N. Aruna Giri said in the ET report that this incident raised concerns, but did not indicate any major crisis. Aruna Giri said that after the Indian rupee crossed the level of 91 for a short period, the question naturally arose in the minds of most investors that is it a time to panic? He also said that after the intervention of RBI the situation became stable. According to Aruna Giri, exchange rate data shows that the rupee is now trading close to its true value, which points towards stability rather than a chaotic fall.
Dollar strength limits gains
Although aggressive intervention by the RBI has eased the immediate pressure on the rupee, analysts have warned that further gains may remain limited until there is clarity on trade talks with the US. According to Reuters, the impact of the dollar’s strength on Wednesday remained on most Asian currencies, due to which the dollar index rose by about 0.4 percent to near 98.6. For now, the central bank’s message was clear: speculation about an uncontrolled fall in the rupee will be strongly opposed.
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